States with no income tax: Complete guide for 2025

You open your first paycheck after relocating from L.A. to Laramie, and it’s bigger than expected. Maybe even a lot bigger. A glitch? A bonus? An unexpected promotion? Nope. Just the reality of living in a state with no personal income tax. Of course, you notice other numbers, too. Property taxes hit harder, and there’s a toll for the only road across town, but it’s hard to ignore the effect on that other number: your savings account balance. It’s never been higher. 

In this guide, we break down how no-income-tax states work: what you stand to save, what it could cost you elsewhere, and what to think about before pulling up real estate listings and or hiring across state lines.

What is state income tax?

State income tax is a tax on income levied by individual states. It’s separate from federal tax and helps fund state services like schools, roads, and public safety. 

Not all states collect income tax, and some may define ‘income’ differently from others. States that do levy an income tax usually look at all income earned within the state, including wages, salaries, business profits, and, sometimes, dividends and capital gains. States that don’t may rely more heavily on corporate income tax, sales taxes, and property taxes to generate revenue.

Example: Alex earns $150,000 working as a VP of Marketing for Big Co. in Hoboken. Every paycheck, Big Co. withholds $1,125 in federal income tax, $478 in federal payroll taxes, and $263 in New Jersey state income tax. Alex’s federal income taxes fund things like national defense, veterans’ services, and government agencies, while the federal payroll taxes go to Social Security and Medicare. Alex’s state income taxes pay for bridge maintenance, teacher salaries, new fire stations, state parks, and other line items in New Jersey’s budget.

Even if you live in a no-income-tax state, you’ll still pay federal income taxes on your earnings. And don’t confuse payroll tax vs. income tax. Payroll taxes support the federal programs Social Security and Medicare, and apply to all U.S. citizens, whereas state income taxes fund local programs and only apply in states that levy them.

Example: Acme Co. employs two project managers, both of whom work remotely and earn $100,000 annually. Morgan sits in Boston, where Massachusetts collects a 5% state income tax. Acme withholds the $5,000, along with roughly $7,650 in federal payroll tax, from Morgan’s paycheck. Taylor sits in Houston and pays the same federal payroll tax, but because Texas has no state income tax, Acme doesn’t withhold anything extra. That gives Taylor $5,000 more in take-home pay than Morgan, even though the two earn the same salary. 

How does state income tax work?

How state income tax works depends on the tax code of each individual state and the priorities of the legislature. Some charge a flat tax that works out as a percentage of your personal income, whether you make $30,000 or $300,000. Others use progressive tax brackets that go up as your income rises. 

Example: Casey and Ari both make $65,000 annually as customer success reps. Casey lives in Colorado, a flat tax state with a 4.4% individual income tax rate. Ari lives in New York, which uses progressive tax brackets that range from 4.0% to 10.9%. Casey pays about $2,860 in state income tax. Ari, at the same income level, falls into New York’s 5.85% bracket and pays around $3,800. They do the same job for the same salary, but the state tax structure means a $940 difference.

Generally, you’ll pay state income tax in the state where you live. If you work across state lines, however, you might end up owing money to the state where the income was earned. 

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

Living in a no-income-tax state means your wages, investments, retirement savings, and other earnings aren’t taxed at the state level. For employers, states without income tax offer the prospect of simplified payroll, with no need to withhold state income tax. For workers, take-home pay can increase. 

That doesn’t mean, however, that you’re off the hook entirely. States still need revenue to fund essential services and popular programs, so residents typically fill the gap by paying sales tax, property tax, and excise taxes on things like gas, tobacco, and utilities. Texas leans on property taxes, Alaska taps oil revenue, Washington taxes capital gains, and Tennessee keeps the lights on with a combination of sales and local taxes. 

The difference between Nevada and New York isn’t whether you’re taxed. It’s where and how.

Which states don’t have income tax?

As of 2025, nine U.S. states do not levy a personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Tax-free states take different approaches to raising revenue and managing costs. Some shift the burden to sales or property taxes, while others benefit from natural resources or tourism. Some go the other way, running on lean budgets or offering less comprehensive public services. 

Here’s how the nine no-income-tax states compare on affordability, local taxes, cost of living, and other key metrics:

1. Alaska

Alaska has no sales tax and a comparatively low property tax, but it ranks low on overall affordability. Residents do pay some excise taxes, and local taxes can vary, particularly in more remote areas.

2. Florida

Florida offers lower property taxes than many other states and levies a moderate sales tax, but it ranks near the bottom for affordability due to the high cost of living in metro areas.

3. Nevada

Nevada combines no income tax with low property tax and minimal local taxes. Still, its low affordability rank might signal high cost of living, with more of residents’ paychecks going to basics like childcare, transportation, utilities, or groceries.

4. New Hampshire

There’s no sales tax in New Hampshire, but its property tax is among the highest of the no-income-tax states. Housing and utility costs also hurt the state when it comes to affordability and cost of living.

5. South Dakota

South Dakota stands out for overall low tax pressure, with low property tax rates and modest sales and local taxes.

6. Tennessee

Tennessee has no income tax, but one of the highest combined state and local tax rates in the entire U.S.—only one other state ranks higher. These expenses are partially offset by low property taxes, but, overall, Tennessee earns only a middling affordability score.

7. Texas

If you count homeownership as a goal, be aware that property tax rates in Texas may increase your housing costs. The state also levies an above-average sales tax, which means you end up paying more for daily expenses.

8. Washington

A more moderate property tax offsets Washington’s high sales and excise taxes, but tax exposure can still add up. It ranks at the bottom of the no-income-tax states for cost of living and affordability.

9. Wyoming

Wyoming offers low sales and property taxes, and makes a strong showing in cost of living and affordability. If you value lower fixed costs, it might prove a tax-efficient option.

Advantages and disadvantages of living in a state without income tax

States without income tax may let you keep more of your paycheck, but other taxes or tradeoffs can eat into those savings. The way each state makes up for the “lost” revenue can affect everything from grocery bills to potholes, and it’s important to think through how a state’s tax system shapes daily costs and public services.

Pros of living in a state with no income tax

For high-income earners and business owners with flexible operations, states with no income tax can offer simpler financial planning, while everyday residents may benefit from fewer filing requirements and a simpler tax code. 

• More take-home pay. No state income tax means one less payroll deduction, freeing up cash for savings and investments. 

• Lower compliance burden. Setting up payroll is easier when employers aren’t required to withhold or file state income taxes, especially for in-state employees.

• Simpler state tax filing. Filing state tax returns can be simpler in a state with no personal income tax, reducing both cost and hassle during tax season. 

Cons of living in a state with no income tax

States with no income tax still need revenue, and when they don’t raise it with income taxes, they find it in other places. Places that can be harder to avoid and less visible upfront. 

• Higher sales or property taxes. States without income tax typically lean on sources like property tax, sales tax, or excise tax, which can hit your wallet and your bottom line.

• Potentially fewer state services. When states generate less revenue, they have less to spend on education, infrastructure projects, and local programs. Local taxes can sometimes close the gap, but that can eat into your extra take-home pay.

• Higher cost in other areas. Depending on where you live, the cost of living can surpass what you gain in larger paychecks. $100 buys you just .88 worth of goods and services in Tacoma, for example, .89 in Miami, and .92 in Nashua. 

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Tips for choosing a no-income-tax state

Moving to a no-income tax state might seem like a financial no-brainer, but those savings can come with hidden tradeoffs. Before packing your bags and pulling up stakes, take a close look at how different states raise revenue, where they spend it, and work out what that means for you and your business. If you rely on state-level incentives like workforce development grants, for example, it’s worth understanding whether the new state offers comparable support and how it’s funded.

1. Evaluate the total tax burden

“No personal income tax” isn’t the same thing as “no taxes.” States still need to raise money to cover essential services, and sometimes decide to make up the difference with higher sales, property, or excise taxes. 

2. Research the cost of living

Some no-income-tax states come with a higher cost of living price tag. Others may have lower costs for housing, groceries, or consumer goods, but provide fewer services or a thinner social safety net. You need to look beyond income tax savings to make sure you’re not trading extra take-home pay for a lower quality of life.

3. Consider property tax rates

If you’re eyeing states without income taxes for real estate investment or plan to buy a home, property tax rates can make a big difference. States like Texas and New Hampshire have no state income tax, but some of the highest property tax rates in the entire country. 

4. Look at the local job market and industries

You won’t benefit much from paying no personal income tax if you don’t have personal income. Dig deep into the job market in your target state to confirm that key industries and the overall economy align with your skills and goals. 

5. Understand local services and infrastructure

Lower tax revenue can sometimes impact the quality of local services, like schools, roads, hospitals, or public safety. If you work remotely and just need a tax base, or don’t rely much on public infrastructure, this may not matter, but it’s still worth careful consideration. 

6. Talk to a tax advisor

Tax rules can vary widely by state, and what you’re saving in state income tax might end up offset elsewhere. Washington, for example, still charges a capital gains tax for some residents, and Texas and New Hampshire have high property taxes.

Hire and manage employees in any state with Rippling

When an employee moves to a no-income-tax state, it could mean a bigger paycheck for them, but it can also mean new compliance and payroll rules for you. Rippling handles those updates automatically, so you’re always withholding the right amount in the right jurisdiction.

Rippling offers full-service payroll software built on top of a single source of truth for employee data. That means your employee data isn’t tied to one specific app—it’s the same across payroll, time and attendance, onboarding, performance management, and any other apps you use within our unified platform. 

What does that mean for you and your team? For starters, you have a single source of truth for up-to-the-minute employee information. It also means that your team doesn’t have to reenter information across systems when an employee gets promoted or moves to a different city to work remotely.

From changing security permissions to updating PTO policies, Rippling triggers automatic updates to employee information in a single flow. This is especially beneficial for small businesses. It allows you to do more with less—less money, less headcount, and less time. Need even more comprehensive support? Rippling PEO offers automated compliance monitoring that covers local, state, and federal levels. 

States with no income tax FAQs

Is living in a state with no income tax better?

Living in a state with no income tax can be better, but it’s important to do the math before pulling up stakes. Some states shift costs typically covered by income tax back to residents through fees or local taxes, and are you really coming out ahead if the money you gain in take-home pay ends up footing your property tax bill? 

If you’re a high earner or remote worker, skipping state income taxes might make the most financial sense. But if you’re on a fixed income or raising a family, housing, healthcare, and school quality may have a bigger impact on your quality of life. 

What is the best state to live in without income tax?

The best state to live in without income tax depends on what matters most to you and your financial planning. Florida and Texas, for example, boast large economies and major cities, but comparatively higher property taxes. You won’t spend much to live in Wyoming or South Dakota, but you may find fewer job options. Washington doesn’t tax income, but does tax capital gains. Depending on whether you’re retired, relocating for a job offer, or investing in real estate, you probably prioritize different factors, so it pays to consider tradeoffs.

Do you still pay federal income tax in no-income-tax states?

Yes, you still pay federal income tax in no-income-tax states. The IRS requires all U.S. citizens and residents above a certain income threshold to file Form 1040 and pay taxes on wages, investments, or other earnings, regardless of which state they call home. Living in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming frees you from state-level personal income tax on wages, but you’re still obliged to pay federal taxes. 

Which states have no income tax?

As of 2025, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming don’t collect individual income tax. (Note that Washington does levy a 7.0% tax on capital gains for some high-income residents.)

How many states don’t have income tax?

Currently, nine states don’t levy an individual income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Residents of these states do pay federal income taxes, however, and Washington taxes capital gains for high-income individuals at a rate of 7.0%.