States With No Income Tax
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While most states tax personal income, eight states have zero income tax. Let’s look at which states don’t tax individual income and how these states fund their budgets in other ways.
Which states have no income tax?
Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming are the eight states with no income tax. New Hampshire also does not tax earned income, but it does tax unearned income like interest and dividends.
How do states with no income tax make money?
States without income tax fund their governments in other ways. Here’s a breakdown of each state.
Alaska has no state income tax and instead relies on property taxes for a good portion of its tax revenue — it ranks ninth in the country for per capita property taxes collected at $2,276. Alaska doesn’t have a state sales tax, but it allows a maximum local sales tax rate of up to 7.5 percent. Even still, the state’s average local tax rate is only 1.76 percent, making it a very tax-friendly state. The state has a higher cost of living thanks to the price of groceries and utilities. Alaska also has a high maximum corporate income tax rate of 9.4 percent.
Florida does not have income, estate, or inheritance taxes. Because Florida depends largely on tourists, it generates much of its revenue (35.2 percent) from consumption taxes, like sales tax. Still, it has a pretty average sales tax rate of 6 percent. Local sales taxes can add up to 2.5 percent more, depending on where you live. Property taxes are another significant source of income for Florida, but the state ranks middle of the road for per capita property taxes at $1,541.
Nevada does not tax individual or corporate income and is another state that relies heavily on sales tax, using it to make up 42.1 percent of its revenue. The state sales tax rate is fairly high at 6.85 percent, and its average local sales tax rate is an additional 1.38 percent (with a combined average of 8.23 percent). The state also has a lower property tax collection at $1,153 per capita.
New Hampshire does not tax individual wages or salaries, but unlike the other states we’ve mentioned, it does levy a tax on interest and dividend income. In 2023, that tax rate is 4 percent, but it is set to decrease by 1 percent each year until it disappears for good in 2027. By then, New Hampshire will join the other eight states in being completely income tax-free. The state does not have a sales tax either and relies on property taxes for roughly 64 percent of its tax revenue; the state has the third-highest property tax rate in the U.S. It also sources about 11 percent of its revenue from corporate income taxes.
South Dakota is a very tax-friendly state. Not only is there no individual or corporate income tax, but South Dakota also makes it easier to become a resident than most other states. According to the Tax Foundation, South Dakota sources most of its revenue from property and sales taxes, but the state and local property tax collections are 26th in the nation at $1,606 per capita. The sales tax rate is also on the lower side at 4.5 percent, and the average local tax rate is 1.9 percent.
Tennessee is income tax-free and has very low property tax collections per capita at $845, making it 47th in the country. Because of this, there is a higher statewide sales tax of 7 percent, and the average local tax rate is 2.55 percent; these taxes make up 45.9 percent of the state’s revenue, according to the Tax Foundation.
Texas has no state income taxes for individuals or corporations and instead relies on high property taxes for 46.7 percent of its revenue. Its state and local property tax collections are $2,216 per capita, making Texas 11th in the nation. The state sales tax rate is 6.25 percent, with an average local sales tax rate of 1.95 percent, giving the state an average combined rate of 8.2 percent.
Washington doesn’t have an individual or corporate income tax, but it has a combined state and average local sales tax rate of 8.86 percent, and it sources 47.1 percent of its income from sales taxes. Washington’s state and local property tax collections are $1,727 per capita, putting it 22nd in the nation. The state also applies a capital gains tax of 7% to gains in excess of $250,000 per year. This limit applies whether your file joint or separate returns.
Wyoming has no individual sales tax and no corporate income taxes. The state has a low sales tax rate of 4 percent and an average local sales tax rate of 1.36 percent, resulting in a combined average rate of 5.36 percent. The state has relatively high property taxes to make up for this, with state and local property tax collections of $2,163 per capita (12th in the nation).
Is it cheaper to live in states without income tax?
If you currently live in a state that taxes income, it might be tempting to think about moving or retiring to one of the states mentioned here, but make sure you consider all the factors. No state income tax does not always mean low taxes overall, and you may find yourself spending more in other areas.
As mentioned above, many of these states make up for having no income tax by taxing residents in other ways. This can differ depending on the state, but you may find yourself paying more in property taxes, state and local sales taxes, excise taxes, or “other taxes” such as vehicle registration fees, inheritance taxes, business license taxes, etc.
No income tax revenue also often means these states spend less on public services like infrastructure and education. Less spending in education can increase higher education costs, for example.
What states are the best for lower taxes?
In terms of less taxation, it’s difficult to conclude the best states to live in. The different tax rates can vary drastically depending on the state, so it’s good to do your research before considering a move. Make sure you consider property tax rates, sales tax rates, and other tax rates, plus the cost of living in each state.
Can I file state taxes with TaxAct?
Yes, we can help you e-file your state income tax return! When you file with TaxAct®, we automatically pull your federal information into your state tax return for a quick filing process.