Nine states collect no state income tax on wages
Nine states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire — do not tax wages or salaries. New Hampshire also does not tax investment income, though it does tax interest and dividends. These states fund government services through sales tax, property tax, corporate tax, and other revenue sources instead.
If you live in or move to one of these states, you will not owe state income tax on your W-2 wages, self-employment income, or business profits. However, you may still owe federal income tax, and you will still file a federal return. State tax status does not change your federal filing requirement.
Two additional states — Montana and Illinois — have limited income taxes that exclude certain types of income. Montana taxes only retirement income and capital gains, not wages. Illinois taxes only income from stocks, bonds, and retirement accounts, not wages. These are sometimes grouped with no-tax states in casual conversation, but they do tax some forms of income.
Key Takeaways
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire have no state income tax on wages.
- These nine states use sales tax, property tax, and corporate tax to fund government instead of taxing individual income.
- Living in a no-income-tax state does not reduce your federal income tax or change whether you must file a federal return.
- New Hampshire taxes interest and dividends but not wages; Montana and Illinois tax only certain types of income, not wages.
- If you move to a no-tax state mid-year, you may still owe tax to your previous state on income earned before you moved.
How no-income-tax states fund government services
States without income tax rely on other revenue sources to pay for schools, roads, police, and other services. The most common replacement is sales tax, which applies to purchases of goods and sometimes services. Sales tax rates in no-income-tax states range widely — Alaska has no statewide sales tax, while Tennessee's is 9.55 percent.
Property tax is another major source. Homeowners and commercial property owners pay annual tax based on property value. Property tax rates vary significantly by county and state. Texas, for example, has no income tax but relatively high property taxes to fund schools.
No-income-tax states also collect corporate income tax (tax on business profits), excise tax (tax on specific goods like gasoline and cigarettes), and licensing fees (fees to operate a business or profession). Some states also tax gambling winnings or specific industries.
What happens if you move to a no-income-tax state mid-year
If you earn income in one state and then move to a no-income-tax state partway through the year, you typically owe tax to your original state on the income you earned while living there. Your employer's withholding will have been based on your original state's tax rate, so you may not need to adjust anything — the withholding was correct for the income earned in that state.
When you file your federal return, you will also file a return in your original state for the portion of the year you lived there. That state's return will show only the income earned during that period. You will not owe tax to your new state on income earned before you moved there, even if you were not yet a resident.
Keep records of your move date, your lease or deed showing when you established residency in the new state, and any documentation of when you changed your address with your employer. These documents help prove when your residency changed if a state questions your filing.
Federal tax still applies in no-income-tax states
Living in a state with no income tax does not reduce your federal income tax. You will still owe federal tax on wages, self-employment income, investment gains, and other income sources at the same rate as someone living in a state with income tax. The federal government and state governments tax independently.
You must file a federal return if your income exceeds the threshold for your filing status, regardless of which state you live in. For 2024, the threshold for a single filer under age 65 is $14,600 in wages. If you are self-employed, you must file if your net earnings are $400 or more, even if you live in a no-income-tax state.
Some people move to no-income-tax states hoping to reduce their overall tax burden. While you do save on state income tax, you may pay more in sales tax or property tax, depending on the state and your personal situation. The total tax you pay depends on your income level, what you buy, and whether you own property.
New Hampshire's special case: no tax on wages, but tax on some investment income
New Hampshire stands apart among no-income-tax states because it taxes interest and dividend income but not wages or salaries. If you earn $100,000 in wages in New Hampshire, you owe no state income tax on that amount. If you earn $5,000 in dividend income from stocks, you owe New Hampshire tax on that $5,000.
This distinction matters if you have significant investment income. Retirees who live on dividends and interest may owe New Hampshire tax even though wage earners do not. New Hampshire also does not tax capital gains (profit from selling stocks or real estate), so the tax applies only to ongoing investment income, not one-time sales.
New Hampshire funds government primarily through sales tax and property tax, similar to other no-income-tax states. The state also taxes business profits and collects excise taxes on specific goods.
Montana and Illinois: partial income taxes on wages
Montana and Illinois are sometimes mentioned alongside no-income-tax states because they exclude wages from income tax, but they do tax other forms of income. Montana taxes capital gains and retirement income (pensions and distributions from retirement accounts) but not wages. Illinois taxes income from stocks, bonds, and retirement accounts but not wages.
If you work for an employer and earn a W-2 wage in Montana or Illinois, you will not owe state income tax on that wage. If you also have investment income or retirement income, you will owe tax on that portion. This creates a situation where wage earners pay no state income tax, but retirees and investors do.
These two states are sometimes grouped with the nine true no-income-tax states in casual discussion, but the distinction matters if you have income sources beyond wages. Always check the specific rules for your state and income type.
How to handle state taxes when you work remotely in a no-income-tax state
If you work remotely for a company in a state with income tax but live in a no-income-tax state, the state where you live generally does not tax your wages. However, your employer may continue withholding tax for the state where the company is located unless you notify payroll of your move and provide proof of residency in the new state.
Contact your employer's payroll or human resources department as soon as you move. Provide a copy of your lease, deed, or utility bill showing your new address and move date. Ask them to update your withholding to reflect your new state of residence. If they continue withholding for your old state after you have moved, you will file a return in your old state to claim a refund of the overpaid tax.
Some employers have policies about where employees can work remotely. A few require employees to live in the state where the company is located, or they adjust pay if you move to a lower-tax state. Check your employment agreement or ask payroll whether your company has such a policy before you move.
Frequently Asked Questions
Do I still have to file a federal tax return if I live in a no-income-tax state?
Yes. State income tax and federal income tax are separate. Living in a state with no income tax does not change your federal filing requirement. You must file a federal return if your income exceeds the threshold for your filing status, which is $14,600 for a single filer under 65 in 2024.
If I move to a no-income-tax state, do I get a refund of state taxes I already paid?
You may. If your employer withheld state tax before you moved, you will file a return in your old state for the portion of the year you lived there. That return will show only the income earned during that period. If withholding exceeded your tax owed, you will receive a refund.
Which no-income-tax state has the lowest overall taxes?
That depends on your income, spending, and whether you own property. Alaska has no statewide sales tax, which benefits shoppers. Texas has high property taxes but no income tax. Compare sales tax, property tax, and other fees in the specific state and county where you plan to live.
Does New Hampshire really have no income tax?
New Hampshire has no tax on wages, but it does tax interest and dividend income. If you earn only wages, you owe no New Hampshire income tax. If you have investment income, you will owe tax on that portion.
Can I claim a deduction for state income tax I paid if I live in a no-income-tax state?
If you paid no state income tax, there is nothing to deduct. However, you can deduct other state and local taxes — property tax, sales tax, and business taxes — up to $10,000 total on your federal return if you itemize deductions.