Nine U.S. states have no income tax on personal earnings: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Wages, investment gains, pension payments, and IRA withdrawals all escape state taxation for residents. What you save on income tax, though, you often pay back through higher sales taxes, higher property taxes, or targeted levies most people don’t see coming until they get there.
The Nine States and How Firm the Protection Is
New Hampshire is the newest addition. The state had long taxed interest and dividend income at rates up to 5%, but the legislature accelerated a planned phase-out, and the tax was fully repealed on January 1, 2025.1New Hampshire Department of Revenue Administration. Repeal of NH Interest and Dividends Tax Now in Effect No form of personal income is now taxed there.
Two states have written the protection into their constitutions. Florida’s constitution bars the state from levying a personal income tax beyond what could be credited against comparable federal taxes, which in practice means no state income tax at all.2FindLaw. Florida Constitution Art. VII, Section 5 – Estate, Inheritance and Income Taxes Texas went further in 2019, amending its constitution to flatly prohibit any tax on individual net income; reversing that would require a new amendment approved by Texas voters.3State of Texas. Texas Constitution Article 8 – Taxation and Revenue – Section 24-a
The remaining seven maintain their no-income-tax status through ordinary statute. A future legislature could theoretically change course. None appears likely to, but a statutory prohibition is easier to reverse than a constitutional one.
How These States Raise Revenue Instead
Governments need money regardless of how they collect it, and the nine states lean on consumption and property taxes to fill the gap. The tradeoffs hit different residents differently depending on spending habits, homeownership, and where wealth sits.
Sales and Excise Taxes
Tennessee charges a 7% base state sales tax, and local governments can add up to 2.75% on top of that.4Tennessee Department of Revenue. Sales and Use Tax5Tennessee Department of Revenue. Local Sales Tax Washington’s combined state and local rates are similarly steep. Sales taxes are regressive by nature: they take a larger percentage of income from lower earners who spend most of what they make. If you’re retired and drawing down savings, a high sales tax environment eats into your purchasing power more than a comparable income tax would have.
Excise taxes on fuel, alcohol, and tobacco add another layer. Fuel taxes vary widely even inside this group, from under 9 cents per gallon in Alaska to over 52 cents in Washington.
Property Taxes
Texas and New Hampshire both rely heavily on property taxes in place of income tax revenue.6Tax Foundation. Property Taxes by State and County, 2026 Texas homeowners face effective rates around 1.4% to 1.7% of home value, consistently among the highest in the country. On a $400,000 home, that’s $5,600 to $6,800 a year. New Hampshire’s rates are comparable. This is the tradeoff that surprises people who move expecting low taxes across the board.
Natural Resources and Tourism
Alaska and Wyoming benefit from severance taxes on oil, gas, and mineral extraction. Alaska’s petroleum revenue is significant enough that the state pays residents an annual Permanent Fund Dividend rather than asking them for income taxes. The 2025 dividend was $1,000 per eligible resident.7Alaska Department of Revenue. Permanent Fund Dividend That dividend is itself subject to federal income tax.
Florida and Nevada lean on tourism, collecting substantial revenue through hotel occupancy taxes and car rental surcharges. Part of the tax burden is effectively exported to visitors.
State Taxes That Still Apply
Living in a no-income-tax state doesn’t mean escaping all state taxation on financial gains. A few targeted levies catch people off guard.
Washington’s Capital Gains Tax
Washington imposes a 7% excise tax on long-term capital gains from selling assets like stocks, bonds, and business interests. The tax applies above a standard deduction adjusted annually for inflation; the 2025 figure is $278,000. Real estate and retirement account gains are excluded.8Washington State Legislature. Chapter 82.87 RCW – Capital Gains Tax9Washington Department of Revenue. Capital Gains Tax
Starting in 2025, an additional 2.9% surtax applies to gains exceeding $1 million, pushing the combined rate to 9.9% on those amounts.8Washington State Legislature. Chapter 82.87 RCW – Capital Gains Tax Selling a long-held business or concentrated stock position in Washington can produce a state tax bill that rivals what you’d owe in many income-tax states.
Washington’s Estate Tax
Washington is the only one of the nine that imposes a state-level estate tax. Estates exceeding roughly $3 million face rates that can reach 20%. The other eight impose no estate or inheritance tax at all. For high-net-worth planning, that difference matters.
Business Taxes
The absence of a personal income tax doesn’t extend to businesses. Texas imposes a Franchise Tax on most entities operating in the state, calculated on a margin base with rates of 0.375% for retail and wholesale businesses and 0.75% for other industries.10Texas Comptroller of Public Accounts. Franchise Tax Nevada charges a Commerce Tax on businesses with more than $4 million in annual gross revenue, at rates that vary by industry.11Nevada Department of Taxation. Commerce Tax If you’re relocating a business, personal income tax savings can be partly offset at the entity level.
What It Means for Retirees
Retirees are the group most drawn to no-income-tax states, and the arithmetic generally works in their favor. Social Security benefits, pension payments, traditional IRA withdrawals, and 401(k) distributions all escape state taxation entirely. For someone drawing a five-figure state tax bill from a comparable income-tax state, the annual savings are meaningful.
Federal tax still applies. Traditional IRA and 401(k) withdrawals are taxed as ordinary federal income. Social Security may be partially taxable federally depending on total income. Roth withdrawals are generally tax-free at both levels. The state-level savings are real; they don’t eliminate the tax obligation.
The catch is the rest of the picture. Higher property taxes in Texas or New Hampshire can absorb much of what you save on income. High sales taxes in Tennessee or Washington add up for retirees who spend freely. Whether you come out ahead depends on your specific mix of income, spending, and property ownership.
Remote Workers and the Convenience-of-the-Employer Trap
If you live in a no-income-tax state but work for an employer based elsewhere, the picture gets complicated. Live and work in Florida for a Florida employer and only Florida’s rules apply, which means no income tax. Several states have a rule that overrides this for remote workers.
Under the “convenience of the employer” doctrine, certain states tax a remote worker’s income based on where the employer is located rather than where the employee sits. New York is the most aggressive enforcer: if your employer’s office is in New York and you work remotely from Texas for your own convenience rather than out of business necessity, New York may claim the right to tax that income. Connecticut, Delaware, Nebraska, Oregon, and Pennsylvania apply versions of the same rule, with varying scope.
The painful part is that no-income-tax states offer no reciprocal credit. When a resident of one income-tax state works in another, the home state credits taxes paid to the work state so income isn’t taxed twice. If your home state charges zero, there’s nothing to credit against, and you simply owe the other state’s tax with no offset. A remote worker earning $150,000 while living in Wyoming but employed by a New York company could owe New York several thousand dollars a year despite never setting foot there.
Before moving to keep a current job remotely, check whether your employer is based in one of these convenience-rule states. Negotiating a remote arrangement classified as a business necessity rather than employee convenience can sometimes resolve the issue, though what qualifies varies by state.
Establishing Residency So the Move Sticks
Moving to a no-income-tax state only delivers savings if your former state agrees you actually left. New York and California audit former residents aggressively, and the burden of proof falls on you.
Domicile Versus Statutory Residency
Tax law draws a distinction that trips people up. Your domicile is the one place you consider your permanent home and intend to return to whenever away. You can only have one at a time. Statutory residency is different: many states treat anyone who spends more than 183 days within their borders and maintains a residence there as a resident subject to state income tax. You can be domiciled in Florida and still become a statutory resident of New York by spending too many days there.
The 183-day count matters enormously. Leave California for Nevada, keep a California home, spend 184 days in it, and California may still tax you as a resident regardless of where you claim your domicile sits. States that run residency audit programs treat these cases as revenue opportunities, and taxpayers who can’t document their day count consistently lose.
Building a Paper Trail
Changing your domicile requires more than updating an address. To withstand a potential audit, systematically relocate the anchors of your daily life:
- Get a driver’s license in the new state, register your vehicles there, and register to vote.
- Update your mailing address with banks, brokerage firms, and the U.S. Postal Service.
- Transfer professional licenses and, if applicable, move your business operations.
- Establish relationships with local healthcare providers, join local organizations, and keep personal belongings at your new home.
- Some states, including Florida, let you file a formal declaration of domicile with the local clerk of court, creating a public record of your intent.
No single step is conclusive. Auditors look at the full picture: where you spend holidays, where close family lives, where your most valuable possessions are kept, and which home is largest. A day-by-day log of your physical location is the single most valuable piece of evidence in a residency dispute, and digital tools that track location automatically are increasingly used for the purpose.
Mid-Year Moves
Moving from an income-tax state to a no-income-tax state partway through the year generally leaves you owing your former state on money earned while still a resident. Most states treat you as a part-year resident, taxing income earned through your departure date and only in-state-sourced income afterward.
The departure date itself becomes the contested issue. Your former state’s position will be that you remained a resident until you prove otherwise, and “I signed a lease in June” won’t settle it if your kids were enrolled in school there through August. The cleaner and faster you sever ties, the less room there is for the old state to claim additional months.
File a nonresident or part-year return with your former state even if you think you owe nothing for the post-move period. Filing starts the statute of limitations clock on assessment, limiting how many years back the state can come after you. Failing to file can leave that window open indefinitely in some jurisdictions.
High earners should expect heightened scrutiny. The 18 months after a move are the most vulnerable period, and keeping meticulous records of your physical location during that time is the best defense against an audit that could cost far more than the taxes you were trying to avoid.