Nine U.S. states do not levy a personal income tax, making them attractive destinations for high earners and retirees looking to reduce their tax burden. But living in a no-income-tax state is not always the bargain it appears to be. Here is the full picture.
The 9 States With No Income Tax
- Alaska
- Florida
- Nevada
- New Hampshire (taxes interest and dividends only, fully phased out in 2025)
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
As of 2025, New Hampshire has fully eliminated its interest and dividends tax, making it a true zero-income-tax state for the first time.
How These States Fund Their Budgets
Without income tax revenue, these states rely heavily on other sources:
Sales tax: Texas charges a combined state and local rate that can reach 8.25%. Tennessee has one of the highest combined sales tax rates in the nation at up to 9.75%. Washington’s combined rate can exceed 10% in some cities.
Property tax: Texas is notorious for high property taxes, with effective rates averaging around 1.6% — roughly double the national average. New Hampshire’s property tax rate is also among the highest in the country.
Severance taxes: Alaska, Wyoming, and to some extent Texas benefit from taxes on oil, gas, and mineral extraction. Alaska even pays residents an annual Permanent Fund Dividend from oil revenues.
Tourism and gambling taxes: Nevada and Florida rely significantly on tourism-related revenue, hotel taxes, and gaming taxes.
The Hidden Costs
Moving to a no-income-tax state to save money sounds simple, but several factors can offset the savings:
Higher property taxes. If you own a home in Texas, your property tax bill on a $400,000 home could easily exceed $6,400 annually — far more than many income-tax states charge.
Higher sales taxes. Everyday purchases cost more when the combined sales tax rate approaches 10%. This disproportionately affects lower and middle-income residents.
Higher cost of living. Popular no-income-tax states like Florida and Washington have seen significant increases in housing costs, partially driven by the influx of people seeking tax advantages.
Fewer public services. Some no-income-tax states spend less per capita on education, infrastructure, and public services. This is not universal — Washington and Texas have strong economies — but it is a factor to consider.
Who Benefits Most?
High earners see the largest absolute savings from avoiding state income tax. Someone earning $500,000 who moves from California (13.3% top rate) to Florida saves over $50,000 annually in state income taxes alone.
Retirees can benefit significantly, especially those drawing large retirement distributions. Florida and Nevada are popular retirement destinations partly for this reason.
Remote workers who can choose where to live may find no-income-tax states attractive, provided their employer does not require them to pay tax in the company’s home state.
A Balanced View
The best state for you depends on your complete financial picture, not just income tax rates. A family with modest income and a high-value home might pay more in total taxes in Texas than in a state with income tax but low property taxes.
Before making a move for tax reasons, compare your total tax burden — income, property, sales, and any other applicable taxes — in both your current and prospective states. The savings are real for some, but not as dramatic as they first appear for others.