Living in the 9 States With No Income Tax: What Are the Pros and Cons?

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When it comes to your taxes and finding some wiggle room in which you can save money, it might be an interesting notion to consider moving to a state with a different tax system — or no income tax whatsoever.

States collect income tax to pay for services such as education, medical care and public infrastructure. A large part of each state’s revenue comes from personal income tax as well as sales tax and business tax assessments. 

Some states, however, don’t impose a state income tax. Instead, these states typically charge more in other taxes, such as sales tax, property tax and capital gains tax. So it begs the question: Are you better off living in a state with no income tax? Here’s what you need to know.

What States Don’t Have Income Tax?

You might consider a move to one of these no-income-tax states if you cringe at the amount of the personalized taxes that seem to be deducted from your paycheck each month. But keep in mind that you’ll likely be paying more in sales and property taxes. Here’s all the information you need on the states that have no income tax.

1. Alaska: There is no state income tax, and it also has no state sales tax, although some municipalities collect local sales tax. Instead, it relies on revenue from oil and other natural resources for its tax foundation, and the majority of this revenue comes from exporting oil via the Trans-Alaska Pipeline System.
2. Florida: Warm weather all year round, growing job prospects and no state income tax makes Florida a popular destination for retirees and families alike. Revenue from tourism allows the state to operate with no state income tax, but Floridians — and visitors — pay a higher-than-average sales tax rate of 6%.
3. Nevada: Nevada also makes up for not collecting state income by charging a higher-than-average sales tax rate — in this case, 6.85%. With combined state and local taxes, residents of Clark County (where Las Vegas is located) shell out 8.38% in sales tax. This rate is no bargain for locals, but because the state depends on tourism dollars, the tax keeps it solvent without state income tax.
4. New Hampshire: Although New Hampshire does collect capital gains tax on interest and dividends, it doesn’t collect income tax on regular earned income. Simply put, New Hampshire charges a 5% tax on interest and dividend income but does not charge income taxes on any resident’s W-2 wages, which is a good personal tax cut. It has the third-highest property tax rate, however, with an effective rate of 1.61% on owner-occupied property.
5. South Dakota: Residents here enjoy the benefit of no state income tax, helping them keep more of their hard-earned money. They also pay a low sales and use tax rate of 4.2%. Municipalities can impose a local sales tax of up to 2% and a local municipal gross receipts tax of up to 1%. Job prospects aren’t great in South Dakota, although the minimum wage increased to $11.50 as of January 1, 2025.
6. Tennessee: Though it has no state income tax, Tennessee does have a state sales tax of 7.0%, and municipal and local sales taxes bring it up to a state-wide average of 9.55%. Sales tax, sometimes called consumption tax, disproportionately affects lower-income households, but no taxes are collected on reported W-2 wages.
7. Texas: Everything is bigger in Texas, including the savings on income tax. Residents may pay no income tax but do have to deal with a 6.25% sales tax rate and property taxes that are among the highest in the nation. In addition, Texas’s minimum wage is only $7.25, the same as the federal minimum wage, so wages don’t provide much purchasing power even with the income tax break.
8. Washington: With no income tax to rely on, the state of Washington charges a higher sales tax to bring in revenue. At 6.5%, the state’s tax rate is among the highest in the nation. Washington does enjoy a minimum wage of $16.66 as of January 1, 2025. This can make a big difference in average earned income. 
9. Wyoming: It doesn’t have a personal income tax or a corporate income tax, which makes it a business-friendly state. In addition, sales tax is a reasonable 4%, with local taxes that bring the rate up to 5.44% total. Wyoming property taxes are also relatively low at 0.55% for owner-occupied property.

Pros and Cons of Tax-Free States

Living in an income-tax-free state might be attractive to many Americans residing in a state with high income taxes. Nothing is really every free, though.

States still have to collect enough revenue to fund services and infrastructure. Every U.S. citizen with income above a certain amount is responsible for paying federal income tax, and some taxpayers also must pay a separate state income tax.

If you aren’t paying income tax, you’re likely paying more in other areas like sales or property taxes. In addition, low wages and few job prospects might make living in a no-income-tax state unaffordable even with this generous tax break. At first glance, it might seem as if there’s no reason to live in a state with income tax, as it simply adds a financial burden to your budget. But there are both pros and cons to living in a state with no state income tax. Here’s a breakdown:

Pros 

• You’ll only have to pay federal income taxes.
• The top federal income tax bracket is 37%. If you find yourself in that bracket, you’ll already be forking over a significant amount of your income to the federal government. Adding state income tax on top of that, especially in a high-tax state like California, can push your total income tax bill to over 50%. Rates like that are enough to push some high earners away from high-tax states like California to no-tax states like Texas.
• Retirement and Social Security benefits can often cover your cost of living.
• When taking retirement income from tax-advantaged accounts like IRAs and 401(k)s, keeping your taxes as low as possible can make a big difference with your fixed income.

Cons

• Other taxes may be higher.
• This translates to higher sales tax, property tax and/or gasoline tax. For example, homeowners in New Hampshire and Texas pay some of the highest property tax rates in the country, at 1.61% and 1.60% respectively. Washington charges the fifth-highest gasoline tax in the country, at 49.4 cents per gallon.
• Having no state income tax can translate to lower revenue for individual states. This may result in lower state spending on many basic services, such as education and infrastructure, which can reduce your quality of life.

Final Take To GO: Is It Better To Live in a State With No Income Tax?

The bottom line is, whether or not it’s better to live in a state with no income tax depends in part on your personal financial situation — but there are other considerations as well.

For example, quality of life and the lifestyle you choose to live are also important. From a strictly financial standpoint, it’s important to remember that the amount you earn plays a large role in your tax situation, which then affects everything from your spending habits to your investment income. 

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