Are States With No Income Tax Really a Better Deal?

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States with no income tax aren’t automatically a better deal. While residents keep more of their paycheck upfront, many of these states offset that benefit with higher sales taxes, higher property taxes, or both. Whether you actually save money depends on your income level, spending habits, and housing costs — not just the absence of an income tax.

What Is State Income Tax?

Most states collect income taxes on the money residents earn, which are separate from federal taxes paid to the IRS. State income taxes are just one piece of the overall tax picture, alongside sales taxes on everyday purchases and property taxes tied to homeownership. Together, these taxes help fund state and local services–but how heavily a state relies on each type of tax can vary widely.

How States Without Income Tax Make Up the Difference

All states need reliable revenue to fund public services like schools, roads, public safety, and infrastructure. When a state collects little or no income tax, it has to make up that revenue elsewhere. In practice, that often means relying more heavily on other types of taxes, including:

• Sales taxes, which apply to everyday purchases and can disproportionately affect lower- and middle-income households
• Property taxes, which directly impact homeowners and can drive up the cost of owning a home
• Excise taxes, such as taxes on gas, hotel stays, alcohol, or business activity, which can raise the cost of transportation and daily life
• Natural resource revenue, where applicable, such as oil, gas, or mining income that helps offset taxes for residents

Because these taxes add up over time, living in a state without an income tax doesn’t automatically translate to a lower overall tax burden. The real cost depends on how much you spend, whether you own property, and how the state structures its tax system.

What States Don’t Have Income Tax?

Here’s a breakdown of the key tax and financial points regarding the nine states that don’t levy an income tax, with data from the Tax Foundation.

States With No State Income Tax

A small group of states do not tax wage income at the state level, allowing residents to keep more of their paycheck upfront.

Alaska

• Income tax status: No income tax or statewide sales tax
• Key taxes residents pay instead: Local sales taxes and property taxes
• Notable consideration: Residents receive an annual Permanent Fund Dividend from oil revenues

Florida

• Income tax status: None
• Key taxes residents pay instead: Property taxes and 6% statewide sales tax plus local surcharges
• Notable consideration: Among the highest property insurance rates in the nation

Nevada

• Income tax status: None
• Key taxes residents pay instead: Generally low property taxes, but a high sales tax that can breach 8% depending on local surcharges
• Notable consideration: Gambling winnings are taxable at the federal, but not the state, level

New Hampshire

• Income tax status: None, including on interest and dividends as of 2025
• Key taxes residents pay instead: Among the most tax-friendly states despite one of the highest property tax rates in America
• Notable consideration: No statewide sales tax

South Dakota

• Income tax status: None
• Key taxes residents pay instead: Manageable sales and property taxes
• Notable consideration: Unlike many states, the sales tax applies to groceries and clothing

Tennessee

• Income tax status: None
• Key taxes residents pay instead: Among the highest combined local and state sales taxes in the nation, which can breach 9%
• Notable consideration: High sales taxes disproportionately impact lower-income households

Texas

• Income tax status: A prohibition on income tax is written into the Texas state constitution
• Key taxes residents pay instead: A high sales tax rate and among the country’s highest property taxes
• Notable consideration: A recently increased homestead exemption offer some relief to high property taxes

Washington

• Income tax status: No traditional income tax, but levies a 7% tax on capital gains for higher earners
• Key taxes residents pay instead: A statewide sales tax averaging nearly 9.5% is among the highest in the nation
• Notable consideration: Estates valued over $3 million face a high death tax

Wyoming

• Income tax status: None for individuals or corporations
• Key taxes residents pay instead: Property taxes, mineral taxes and a low sales tax
• Notable consideration: Ranked as the country’s most tax-friendly state, with no income, inheritance or estate tax and a very low sales tax

Are You Really Saving Money in a No-Income-Tax State?

According to the Tax Foundation’s 2026 State Tax Competitiveness Index, Wyoming and South Dakota rank as the No. 1 and No. 2 most tax-friendly states in the country–while Washington comes in at No. 45.

That wide gap exists because a state’s overall tax burden isn’t determined by income taxes alone. In many cases, other taxes quietly make up the difference, including:

• High property taxes, which can erase income-tax savings — especially for homeowners
• High statewide and local sales taxes, which apply to most purchases regardless of income and can add up quickly
• Excise taxes on gas, tourism, alcohol, or business activity, which raise everyday costs
• Capital gains taxes, which some states impose even without a traditional income tax

Your income level and housing situation also matter. Higher earners may benefit more from skipping income tax, while renters often feel the impact of property taxes indirectly through higher rent — without access to homeowner deductions or tax breaks.

What This Means For Your Wallet

Living in a no-income-tax state can help some households keep more of their earnings, but it doesn’t guarantee lower overall taxes. How much you actually save depends on your income, spending habits, and housing situation, including whether you rent or own.

Pros and Cons of Living in a State With No Income Tax

Consider the following benefits and drawbacks of living in a state that doesn’t tax your earnings. 

Pros of No-Income-Tax States

• More take-home pay from wages
• Potential tax advantages for retirees
• Simplified state tax filing
• Can benefit high earners disproportionately

Cons of No-Income-Tax States

• Higher sales and property taxes
• Regressive tax impact on lower earners
• Possible tradeoffs in public services
• Lower wages may offset tax savings

Who Benefits Most From Living in a No-Income-Tax State?

Certain groups are more likely to benefit financially from living in a state with no income tax — especially those whose income is high, predictable, or flexible. These include:

• High earners, who avoid paying state tax on a larger share of their income
• Retirees with fixed income, particularly those relying on pensions, Social Security, or investment income
• Business owners or self-employed individuals, who may reduce their overall tax burden depending on how their income is structured
• Remote workers, who can choose where they live without being tied to a specific job location

When a No-Income-Tax State Might Not Be Worth It

Even without a state income tax, the financial tradeoffs can be meaningful. For many people, the savings are offset by other costs and lifestyle factors, including:

• Lower wages or limited job markets, which can reduce overall earning potential
• High housing costs or property taxes, especially in fast-growing or high-demand areas
• Heavy reliance on sales taxes, which can increase everyday expenses regardless of income
• Lifestyle and quality-of-life considerations, such as access to healthcare, schools, climate, and infrastructure

Is It Better To Live in a State With No Income Tax?

Taxes matter — but they’re only part of the decision. Choosing where to live involves more than dollars and cents, including lifestyle preferences, income stability, family needs, and proximity to work or loved ones. Because income taxes are progressive while sales taxes are regressive, the impact of a state’s tax structure can vary widely from one household to the next.

States with no income tax can offer a meaningful financial advantage, but that benefit isn’t guaranteed. Higher living costs or heavier reliance on other taxes can reduce — or even eliminate — the savings, making it essential to look at the full picture before relocating.

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