What States Don’t Have Income Tax: 2025 Guide for Taxpayers

Knowing what states don’t have income tax helps taxpayers prepare their returns, prevent overpaying taxes, and avoid unexpected liabilities. There are nine states that don’t levy income taxes, and they are: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

In this article, we’ll explore why these states don’t have income taxes and what the pros and cons of living in them are. We’ll also compare these states, see how living in them affects your finances, and analyze whether you should consider moving to a state that doesn’t have income tax.

Which States Don’t Have Income Tax in 2025?

There are nine states with no income tax as of 2025, including:

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

New Hampshire used to levy an interest and dividends tax, but that was repealed on January 1st, 2025, officially becoming a state with no individual income tax.

Also, most no-income-tax states lists include Washington, as it doesn’t have income taxes in most cases. However, it does impose a tax on long-term capital gains for some high earners, at the rate of 7% on earnings of up to $1 million, and 9.9% for everything above that threshold.

These states are attractive to many citizens for multiple reasons. Residents typically receive higher take-home pay, since there are no state taxes to reduce it. Various other individuals (from retirees to high earners) can benefit from living in a state with no income tax, as they can maximize their incomes.

Why Do Some States Have No Income Tax?

There are several economic and political reasons why some states have no income tax.

From the economic standpoint, some states earn income from sources other than taxation. This can include revenue from natural resources (oil in Alaska), state earnings from tourism (Nevada, Florida), or profits from strong businesses that migrated to these states, boosting their sales and property taxes.

Politically, many of these states represent themselves as pro-business or pro-resident. A lack of income tax acts as an incentive for individuals and organizations to move there. Then, they can prosper from people and companies who have relocated.

However, these additional sources of funds aren’t always enough to compensate for a lack of revenue from income taxes. As a result, some states had to develop alternative methods of funding public services, such as schools, healthcare, and infrastructure.

To achieve this, they rely on other types of taxation (e.g., sales tax vs. income tax). A study titled “Revenue Structures of States Without an Income Tax” by the Fiscal Research Center found that states without an income tax often raise more revenue per capita from sales tax and other types of taxes.

For example, Nevada and Tennessee have some of the highest state and local tax rate combinations. On the other hand, Texas and New Hampshire fund their local government in part via property taxes, which are higher than average.

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

Living in a no-income-tax state comes with multiple benefits, but it’s not without its drawbacks.

Let’s start with the pros, which are:

• Higher take-home pay. The most direct benefit of living in a state that doesn’t levy income tax is that you get to keep more of your earned income. Since employers don’t withhold state taxes from your paycheck, there’s a smaller difference between your gross and net pay, compared to states that have income tax.

• Simpler tax filing. Since you don’t have to account for state income taxes when filing your tax return, you’ll have an easier time fulfilling your obligations. Plus, there’s less chance of making a mistake when performing calculations.

• Job opportunities and economic growth. States often don’t levy income taxes to attract businesses, independent contractors, and entrepreneurs. This often leads to growth opportunities and job openings.

Now, here are the cons of living in a state with no income tax:

• Higher alternative taxes. Most states that don’t levy income tax compensate for it by increasing rates on other types of taxes (e.g., sales, property, or excise tax).

• Potentially less-funded public services. Due to no revenue from income taxes, states sometimes provide less funding to public services. This can have an impact on the quality of life.

• Disproportionate tax structure. Increased alternative taxes may affect lower-income residents more than they affect higher-income individuals. For instance, higher sales taxes can negatively affect lower-income households, since they often spend a larger portion of their earnings on goods and services.

9 No-Income Tax States Compared

Let’s take a look at the state tax comparison, major revenue sources, and the ultimate affordability ranking given to no-income-tax states by the U.S. News.

1. Alaska

Alaska is unique in that it doesn’t levy both state income tax and state sales tax. Instead, the state relies on its reserves of oil and minerals for the bulk of the revenue. On account of that, residents receive an annual dividend from the Alaska Permanent Fund.

However, the cost of living can be high due to its remote location, placing Alaska in 31st place on the affordability list.

Here is the breakdown of key figures:

2. Florida

Florida is a popular destination for families and citizens looking to retire. The state primarily funds itself through tourism and a moderately high sales tax. Furthermore, a competitive housing market can increase the cost of living.

Here are the metrics:

3. Nevada

Nevada relies on revenue from gaming and tourism, which has allowed it to drop its state income tax. It also has a relatively high state sales tax, but property taxes are among the lowest in the U.S.

Let’s look at the metrics:

4. New Hampshire

New Hampshire stopped taxing interest and dividend income as of 2025, becoming a no-income-tax state. However, the state has some of the highest property tax rates in the country.

Here are the details:

5. South Dakota

South Dakota positioned itself as a business-friendly state, with no corporate or individual income tax. It’s positioned highly on the affordability scale due to a low cost of living.

Let’s look at the specifics:

6. Tennessee

Tennessee has one of the highest state sales taxes, offsetting a lack of income tax. Its diverse economy and moderate cost of living give it 19 on the affordability scale.

Here are the metrics:

7. Texas

Texas uses a lack of income tax to draw in businesses and entrepreneurs, and it has major hubs for energy and technology. The state uses high property tax rates to fund local services.

Let’s look at the details:

8. Washington

Washington belongs to the group of no-income-tax states, even though it levies tax on long-term capital gains for high earners.

Here are the details:

9. Wyoming

Wyoming relies on property taxes and taxes on mineral production for funding, as it has no individual or corporate income tax.

Here is the table:

How No Income Tax Affects Your Finances

The biggest impact of living in a no-income-tax state has on your finances is on your take-home pay, as there are fewer reductions to your pre-tax income.

For instance, California’s state income tax rate ranges between 1% and 13.3%. As a result, someone living there could pay thousands of dollars in state income tax. For comparison, a resident of Texas wouldn’t pay anything in state income tax, regardless of their salary.

However, it’s important to note that this doesn’t necessarily translate to a more favorable cost of living. These states often compensate by increasing other tax rates, like sales and property tax rates.

As a result, the total tax burden in states with and without income tax (e.g., Texas and California) isn’t only influenced by the difference in state income tax. That’s why it’s important to do a comprehensive analysis of all taxes to understand how your finances will be affected.

How to Decide if Moving to a No-Tax State Is Worth It

When deciding if moving to a no-income-tax state is worth it, you shouldn’t look at just that one metric. Instead, you want to perform a thorough evaluation of your goals and circumstances, including financial and lifestyle aspects.

Immediate savings due to no income tax can be significant, but you will likely have to spend at least a portion of that money elsewhere. As a result, states with no income tax don’t necessarily have a low cost of living.

That’s why it’s critical to assess your current situation before moving. For example, if you’re a high-income individual with no property, you can gain plenty of benefits from moving to a no-income state.

On the other hand, those living paycheck to paycheck or retirees with fixed, modest incomes may find sales and property taxes too high, making their definition of a tax-friendly state different.

Other aspects and financial factors to consider include job opportunities, housing costs, and even the accessibility and affordability of healthcare. Evaluating these elements in combination with your short-term and long-term goals will help you make the right decision.

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Final Thoughts

There are benefits to living in a state that doesn’t have income tax. The immediate impact is on gross and net pay, though there are other advantages, like better job opportunities and potential for business growth. However, this shouldn’t be used as a single metric to determine whether you should move.

States that don’t have income tax often compensate by making other tax rates higher. As a result, sales, property, or excise taxes can be much bigger than you’d expect. That’s why you should have an all-encompassing approach to your planning. Take into account your lifestyle, finances, and long-term goals to determine whether relocating is the right move.

What States Don’t Have Income Tax FAQs

1. Which no-income-tax state is best for retirees?

Florida is commonly referred to as one of the best states to live in, with no income tax for retirees. The state also doesn’t levy taxes on retirement income, and is known for its warm climate. Wyoming is another solid option, as it doesn’t have income, state, or inheritance taxes.

2. Do states without income tax have higher property taxes?

In many cases, yes, states without income tax have higher property taxes. For example, Texas and New Hampshire don’t have income tax but have among the highest property tax rates in the United States.

3. Are no-tax states really cheaper to live in?

No-tax states aren’t necessarily cheaper to live in than states that levy income taxes. These states typically have higher rates for other types of taxes, like property and sales tax. They may also be higher costs of living in no-tax states and lower funding for public services.

4. How does no state income tax affect federal taxes?

No state income tax affects federal taxes in that you can’t take advantage of the “federal offset.” In essence, if you claim itemized deductions on your federal return, you can offset some of the state taxes by reducing federal taxes.