9 States With No Income Tax

Living in a state with no income tax is one strategy for lowering your overall tax burden.

Here’s a breakdown of what living in one means, what benefits you might enjoy, and what drawbacks you could expect. Plus, see a quick head-to-head analysis of how these nine states with no income tax match up regarding other taxes and living costs.

States without income tax

Nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming — do not levy a state income tax. However, New Hampshire taxes dividends and interest, and Washington taxes some capital gains.

Exceptions

New Hampshire does not tax most earned income, but it does impose a 3% tax on dividends and interest. This tax will phase out completely in 2025^[0]

And though Washington doesn’t tax most earned income, in July 2023, the state implemented the WA Cares Fund. The program deducts 58 cents per $100 from employees' paychecks to be funneled into the state’s long-term care program.

What does it mean to live in a state with no income tax?

At the most basic level, living in a state with no personal income tax means that you’ll get to keep a little bit more of your paycheck. And if you’re currently living in a state with high personal income tax rates, such as California, it can seem tempting to pack your bags and book a one-way ticket to Washington. However, moving to a state without an income tax doesn’t mean that you’ll be excused from paying other taxes. For example, if you meet the income qualifications for filing a federal return, you’ll still be expected to do so by the tax filing deadline.

» MORE: See what federal tax bracket you’re in

Pros and cons of living in a state without income tax

Retirement benefits

Most people can expect to pay at least some taxes during retirement — whether on 401(k) distributions, pensions or even Social Security benefits in some states. However, residents of states without personal income tax generally get to skip paying state taxes on retirement income, which can mean more money for their golden years.

Avoiding additional taxes can be a nice retirement perk, but make sure you weigh the tax benefits of moving against other important financial (and personal) considerations. For example, some states have fewer options for public transportation, less affordable health care, higher property taxes or minimal funding for senior care programs. You also might not want to live far away from friends or family.

» MORE: Other ways to lower your taxes in retirement

Other taxes

State taxes are often used to generate revenue for services such as health care or to fund infrastructure. Without this revenue stream, some states end up relying more heavily on other taxes, such as property or sales, to recoup the loss. If you're a homeowner who currently lives in a state with relatively affordable property taxes, it may not be worth giving that up. And, importantly, living in a state with no income tax also means you might not be able to take full advantage of the state and local tax deduction if you itemize on your federal return.

On the plus side, except for New Hampshire and Washington, living in an income-tax-free state does mean that any capital gains you earn are protected from state taxes. This means that you’ll be liable only for any capital gains taxes on the federal level, which are calculated based on how long you held the asset before selling it.

» MORE: Explore other ways of lowering your capital gains burden

Establishing domicile

Several conditions need to be met to reap the benefits of living in an income-tax-free state. Establishing domicile, or the intention of making a state your permanent home, is the most critical one. Rules and requirements vary from state to state, but generally, you must live in a place for at least half of the year, 183 days, to begin qualifying as a permanent resident. In addition, states conduct residency audits, so this will require proof.

Tread carefully here. Someone who lives in one location (say, New York) but spends a good part of the year in another state (say, North Carolina) could be considered a permanent resident of one state and a “statutory resident” of the other for tax purposes. This means they could end up paying taxes on earned income in both states. Tax planning with a professional, such as a financial advisor, is one of the best ways to avoid finding yourself in a sticky tax situation.

» MORE: What is dual residency and what are the tax implications?

Cost (and quality) of living

Perhaps the most critical number to crunch is your cost of living. This includes tallying up the costs of housing (rental or purchase), food, wages, health care and lifestyle. The savings you gain on state taxes might not be worth the extra cost incurred to live comfortably in another state.

Think about your job, as well. Remote work has made it easier than ever to envision moving without risking job security. But if you were to live in a state with limited opportunities in your particular industry and something disrupted your employment, you could face difficulties securing another job.

» MORE: Thinking about a move? Compare the cost of living in two cities using our cost of living calculator

How the 9 states with no income tax stack up

Alaska

America’s largest state is also considered one of the most tax-friendly. When Alaska repealed its personal income tax in 1980, it began to tax companies involved in oil and gas production at high rates to generate revenue. Alaska’s overall state and local tax burden is 4.6% as of 2022, the lowest in the nation.

On the downside, Alaska is remote — and expensive in other ways. U.S. News & World Report ranks Alaska an overall 40 out of 50 on its affordability list^[0]

Florida

This southern state is a popular retreat for vacationers and retirees alike. Florida generates most of its revenue from property taxes, highway tolls and state university tuition. This makes for an overall state and local tax burden of 9.1% as of 2022. While the cost of living might not be a deal-breaker for most people, Floridians may still have to contend with a competitive housing market and prices. U.S. News & World Report ranks the state at 41 out of 50 for housing affordability^[0]

» Learn more: Other Florida state tax payments to know about

Nevada

Nevada’s overall state and local tax burden is 9.6% as of 2022. Nevada is routinely ranked at the lower end of the scale when it comes to affordability. U.S. News & World Report positions the state overall at 34 out of 50, with a particular nod to higher-than-average housing costs. The property tax rates, on the other hand, are among the lowest in the country^[0]

New Hampshire

Unlike other states on this list, New Hampshire still taxes dividends and interest on investment income at a 3% rate. That tax will be completely phased out in 2025. The state also doesn’t impose sales taxes, but levies excise taxes on goods such as tobacco.

According to the Tax Foundation, the overall state and local tax burden is 9.6% as of 2022. Where New Hampshire falls short is affordability (ranking 36 out of 50) and cost of living (ranking 39 out of 50). New Hampshire is also known for its relatively high property taxes.

South Dakota

South Dakota, home to Mount Rushmore and Badlands National Park, is often lauded as one of the top locations for retirees. For affordability, U.S. News & World Report ranks it at 7 out of 50 nationally for its housing and cost of living scores. South Dakota’s overall sales and local tax burden is 8.4% as of 2022; the state depends on sales and excise taxes to generate revenue, levying taxes on items such as tobacco, motor fuel and alcohol.

Tennessee

According to the Tax Foundation, Tennessee does impose a high sales tax, and it charges tax on items such as alcohol, beer, fuel and even fantasy sports contests. Yet, its overall tax burden is 7.6% as of 2022, the third-lowest in the country (behind Wyoming and Alaska). As for affordability, U.S. News & World Report ranks it an overall 14 out of 50.

Texas

Texas is the second-largest state in the U.S., and it’s widely known for its “go big or go home” attitude. In fact, Texas’ aversion to income taxes is so strong the ban is listed in the state constitution. The overall state and local tax burden is 8.6% as of 2022, making it one of the lowest in the country. However, Texas’ overall affordability and cost of living rankings come in on the lower end, with U.S. News & World Report rating the state 33 out of 50 in both categories.

» Learn more: Texas state and local sales tax

Washington

Not only does the Evergreen State not have income tax; it also doesn’t impose a corporate income tax. This incentive is no doubt appealing to the many major corporations that have headquarters in the state. However, with the new WA Cares Fund, residents now see a deduction of 58 cents per $100 from each paycheck that goes toward a long-term care fund. The state also imposes a 7% long-term capital gains tax on assets sold for a profit of $250,000 or more.

Washington’s overall state and local tax burden is 10.7% as of 2022. It takes the 46th spot on U.S. News & World Report’s affordability scale, with a high cost of living and high housing costs being the primary drivers.

Wyoming

Wyoming is the least populated state in the U.S., with a total of 581,381 residents calling it home, according to 2022 Census data. Because there’s no individual or corporate income tax, the state relies on property, oil, sales and excise tax to generate income. Its overall state and local tax burden is 7.5% as of 2022, the second-lowest in the country. Wyoming scores above average when it comes to cost of living and housing — U.S. News & World Report gives it an overall affordability rank of 18 out of 50.

Note: State, local and property tax data come from tax policy nonprofit the Tax Foundation and is for the 2022 calendar year, the most recent year for available data.

Recap: Which states are fully income tax-free?

Seven states do not levy any form of income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas and Wyoming. New Hampshire and Washington don't tax most earned income, but there are certain cases in which residents may be subject to a state tax.