What states have no income tax remains one of the most searched tax-related questions as Americans continue seeking ways to reduce their tax burden. As of 2025, nine U.S. states levy no personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Eight states, including New Hampshire, which repealed its interest and dividends tax in 2025, levy no individual income tax, making this year particularly significant for taxpayers considering relocation.
The landscape of state taxation underwent major changes in 2025, with New Hampshire completing its transition to a fully tax-free state after eliminating its last remaining income tax on interest and dividends. This development brings the total number of income tax-free states to nine, offering Americans more opportunities to keep more of their earnings.
Understanding the Nine Income Tax-Free States
Each of these nine states offers unique advantages beyond their lack of income tax. Alaska stands out not only for its zero income tax but also for its Permanent Fund Dividend, which actually pays residents annual checks from oil revenue profits. The state has maintained this policy for decades, making it attractive for high earners in industries like oil, fishing, and tourism.
Florida continues to dominate the no-income-tax conversation, attracting retirees, business owners, and remote workers with its year-round warm weather and business-friendly environment. The state’s economy thrives on tourism, agriculture, and aerospace industries, providing ample employment opportunities without the burden of state income taxes.
Nevada’s gaming and entertainment industries fuel its economy while keeping residents free from income tax obligations. The state has become increasingly popular among tech companies and entrepreneurs, particularly those relocating from high-tax California.
South Dakota offers agricultural opportunities and low overall tax burden, making it attractive for farmers and rural business owners. The state’s economy benefits from agriculture, manufacturing, and increasingly, financial services.
Tennessee eliminated its income tax on interest and dividends in recent years, joining the ranks of completely income tax-free states. The state’s music industry, manufacturing sector, and logistics operations provide diverse economic opportunities.
Texas, with its massive economy rivaling entire countries, offers no income tax while providing extensive job markets in energy, technology, healthcare, and aerospace. The state’s business-friendly policies continue attracting major corporations and startups alike.
Key Points Summary
Quick Reference for Tax-Free Living
- Nine states charge zero income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming
- New Hampshire completed its transition in 2025 by eliminating interest and dividend taxes
- Alternative revenue sources include sales taxes, property taxes, and natural resource revenues
- Federal taxes still apply regardless of state residence
- Hidden costs exist through higher sales taxes, property taxes, and fees in most tax-free states
- Relocation benefits vary based on individual income levels and spending patterns
Washington State leverages its technology sector, led by companies like Microsoft and Amazon, while maintaining no income tax through other revenue sources including sales taxes and business taxes.
Wyoming rounds out the list with its energy-focused economy and minimal government spending, creating an environment where income taxes remain unnecessary for state operations.
Revenue Alternatives in Tax-Free States
States without income taxes don’t operate without revenue. Instead, they rely heavily on alternative funding sources that may impact residents differently than income taxes would. Sales taxes tend to run higher in these states, with some reaching nearly 10% when combining state and local rates.
Property taxes often compensate for missing income tax revenue, particularly affecting homeowners and real estate investors. Some states like Texas and New Hampshire maintain relatively high property tax rates to fund local services and schools.
Natural resource extraction provides substantial revenue for states like Alaska, Texas, and Wyoming through oil, gas, and mineral rights. These revenues can fluctuate significantly with commodity prices, sometimes requiring budget adjustments that affect residents through other tax mechanisms.
Tourism taxes, hotel occupancy fees, and entertainment taxes generate significant revenue in states like Florida and Nevada. These taxes primarily impact visitors rather than residents, creating an attractive situation for locals.
Economic Impact and Migration Patterns
The absence of state income tax creates compelling economic incentives that drive interstate migration patterns. High earners particularly benefit from these policies, as they face substantial savings on their largest expense category. A person earning $200,000 annually could save $15,000 or more by relocating from a high-tax state to one with no income tax.
Remote work trends accelerated during recent years have made geographic arbitrage more accessible. Workers can maintain high-paying positions based in expensive states while living in tax-free jurisdictions, maximizing their after-tax income.
Business formation rates tend to run higher in no-income-tax states, as entrepreneurs can reinvest more profits back into their companies rather than paying state taxes. This creates a positive economic cycle that attracts more businesses and jobs to these jurisdictions.
Considerations Before Relocating
What states have no income tax represents just one factor in comprehensive financial planning. Cost of living variations can offset tax savings, particularly in popular destinations like Florida’s major metropolitan areas or Washington’s Seattle region.
Healthcare costs, housing prices, and education quality vary significantly among tax-free states. Wyoming offers low housing costs but limited cultural amenities, while Florida provides extensive entertainment options but higher insurance costs due to weather risks.
Employment opportunities differ dramatically between these states. Texas offers diverse job markets across multiple industries, while Alaska’s economy focuses heavily on natural resources and seasonal work.
Climate preferences play major roles in relocation decisions. Some people thrive in Alaska’s extreme weather and outdoor lifestyle, while others prefer Florida’s subtropical environment or Tennessee’s moderate four seasons.
Future Outlook for Income Tax-Free States
Political and economic pressures continue affecting state tax policies across the nation. Nine states—Indiana, Iowa, Louisiana, Mississippi, Missouri, Nebraska, New Mexico, North Carolina, and West Virginia—will cut individual income tax rates on January 1, 2025, indicating a broader trend toward lower state income taxes.
Budget constraints and infrastructure needs may eventually pressure some tax-free states to consider income taxes, though none currently show signs of implementing such changes. Strong economic growth in most of these states provides adequate revenue through existing tax structures.
Federal tax policy changes could affect the relative attractiveness of state tax strategies. Higher or lower federal rates might influence the value proposition of living in income tax-free states versus those with state taxes but other advantages.
Economic diversification efforts in resource-dependent states like Alaska and Wyoming aim to create more stable revenue sources, potentially maintaining their tax-free status even if natural resource revenues decline.
Special Circumstances and Exceptions
Certain income types may still face taxation even in income tax-free states. Business taxes, franchise fees, and professional licensing requirements can create tax obligations for entrepreneurs and professionals.
Multi-state income earners must navigate complex tax situations when working across state lines. Establishing proper residency becomes crucial for claiming tax-free status, particularly for high earners who might trigger audits.
Retirement account distributions, Social Security benefits, and pension payments generally remain tax-free at the state level in these nine states, making them particularly attractive for retirees with substantial retirement savings.
Investment income treatment varies slightly among states, though none of the nine currently tax capital gains, dividends, or interest at the state level as of 2025.
Understanding what states have no income tax provides valuable information for tax planning, but successful financial strategies require comprehensive analysis of total tax burden, cost of living, and personal circumstances. Each of these nine states offers unique advantages and challenges that merit careful consideration before making relocation decisions.
The trend toward lower state tax burdens appears likely to continue, potentially expanding the list of tax-advantaged states in future years. For now, these nine jurisdictions provide Americans with substantial opportunities to reduce their tax obligations while enjoying diverse economic and lifestyle benefits.
Whether you’re a high-earning professional, successful entrepreneur, or retiree seeking to maximize your income, these tax-free states offer compelling advantages worth exploring. The key lies in matching your personal and financial priorities with the right state’s unique combination of benefits and trade-offs.
FAQ
Q: Do I still pay federal taxes if I live in a state with no income tax? A: Yes, all U.S. residents must pay federal income taxes regardless of their state of residence. State income tax policies don’t affect federal tax obligations.
Q: Are sales taxes higher in states without income tax? A: Generally yes, most tax-free states compensate with higher sales taxes, property taxes, or other fees. However, the total tax burden often remains lower for higher-income individuals.
Q: Can I claim residency in a tax-free state while living elsewhere? A: No, you must establish genuine residency through physical presence, voter registration, driver’s license, and other legal requirements. Tax authorities actively audit suspicious residency claims.
Disclaimer: This article provides general information about state tax policies and should not be considered professional tax advice. Tax laws change frequently, and individual circumstances vary significantly. Readers should consult qualified tax professionals before making financial decisions based on this information. We assume no responsibility for actions taken based on this content or for any errors or omissions in the information provided.