- Nine states have no state income tax on earned income.
- Residents of income-tax-free states don't always have the lowest overall tax burden.
- Local governments often raise revenue through higher property and sales taxes.
Texas and Florida have seen huge population growth in recent years. It's probably no coincidence that these two states are income-tax free, helping some residents keep more of their paychecks in their pockets — and simplifying tax season.
However, income taxes are just one way that state and local governments raise revenue for public services. To really measure the impact of a no-income-tax policy on household income, you need to consider things like sales and property taxes, too.
Overview of states with no income tax
List of states with no income tax
The federal government taxes the earned income of all U.S. residents, but not all states do.
Nine U.S. states don't impose state tax on earned income:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
However, New Hampshire and Washington do still tax certain investment income. New Hampshire doesn't tax W-2 income, and tax on investment income is being gradually phased out in 1 percentage point increments each year until it's fully repealed for tax years after 2026.
Washington collects a 7% tax on capital gains income over $250,000. Tennessee fully repealed its state income tax on income earned from interest and dividends in 2021.
The states that do tax income have either a flat income tax — meaning everyone, regardless of how much they earn, pays the same percentage of their income to the government — or a progressive income tax, which means their tax rate is determined by how much they earn.
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Advantages of living in a state with no income tax
Residents who live in states with no income tax may benefit from higher take-home pay relative to people living in states that do tax income. That means a bigger paycheck, and possibly a lower overall tax burden. However, the impact can vary greatly along the income spectrum.
Tax season can also be less stressful for people in states without income tax, since they're only responsible for filing a federal tax return.
Cost of living considerations in income-tax free states
Comparing property and sales taxes
In some income-tax free states, lower-earning households see no benefit, according to a report from the Institute on Taxation and Economic Policy. In fact, the bottom 20% of earners in Florida and Texas pay a larger share of their income in taxes than the top 1% of earners in California, a notoriously high-tax state.
In states with no income tax, you may be paying much more in local property taxes, sales taxes, as well as excise taxes on things like alcohol and tobacco.
Texas and New Hampshire, for instance, may not tax your earnings, but they do have some of the highest property tax rates in the country, which could affect you if you're a property owner.
Likewise, Tennessee doesn't tax your paycheck, but it will get you in the checkout line. The state has one of the highest maximum state and local sales tax rates in the country at 9.55%, according to the Tax Foundation.
Some households may be able to offset high state and local taxes with a federal tax break. Federal tax code allows property owners who itemize deductions on their annual returns to write off property taxes and state income taxes or sales taxes paid, up to $10,000.
Impact on public services and infrastructure
Individual income taxes accounted for nearly 48% of state tax collections in 2022, according to the latest data from the U.S. Census Bureau. The revenue from these taxes helps fund, in part, public works projects, healthcare coverage, public education, transportation, economic assistance to low-income families, and more.
Without income tax revenue, income-tax-free states need to rely on federal grants and other types of fundraising, such as from sales or property taxes, or they may spend less on certain programs and services.
Factors to weigh before moving to an income-tax free state
In some income-tax free states, you may find that you're paying more for essential items. The income-tax free state of Alaska, for instance, has one of the highest cost-of-living indexes in the country, according to data from the Missouri Economic Research and Information Center.
Before deciding to relocate, be sure to compare the cost of healthcare, food and groceries, insurance, and other everyday expenses to ensure that the increase in your take-home pay won't be neutralized by your costs. Also consider other taxes, such as property taxes, that are levied by the city or county where you're looking to move.
Consider factors other than a state's tax policies too, such as weather, access to nature, job opportunities, and quality of educational systems.
States with no income tax FAQs
The states with no income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. However, New Hampshire and Washington each tax certain investment income.
The benefits of living in a state with no income tax include having a higher disposable income, since state income taxes aren't taken out of every paycheck. You can also save time, and money, on state tax return preparation and filing.
Several states with no income tax have higher property taxes than states with an income tax, though property taxes are collected by local governments, not states.
It's not necessarily cheaper to live in a state with no income tax. The income-tax-free state of Alaska, for instance, has one of the highest cost-of-living indexes in the country, according to data from the Missouri Economic Research and Information Center.
States without an income tax fund public services using federal grants and by collecting sales taxes and local property taxes.
There may be hidden costs to living in a state with no income tax, such as higher property taxes and sales taxes. Essential purchases, such as food and healthcare, may be more expensive too.
