9 States With No Income Tax in 2025

When planning retirement or considering a move to maximize take-home income, state income tax becomes a crucial factor in your financial equation. While the federal government will still take its share, living in one of the nine states with no income tax can save you thousands, or even tens of thousands, of dollars annually.

But is moving to a tax-free state always the best financial decision?

This comprehensive guide examines all nine states with no income tax, the trade-offs you need to consider, and how to determine which option is best for your situation.

As of 2025, nine states impose no state income tax on earned wages:

1. Alaska

2. Florida

3. Nevada

4. New Hampshire (as of January 1, 2025 – previously taxed dividends and interest at 3%)

5. South Dakota

6. Tennessee

7. Texas

8. Washington (note: does tax capital gains over $250,000)

9. Wyoming

These states don't tax your salary, wages, Social Security benefits, pension income, or retirement account distributions. For many retirees and high earners, this represents substantial annual savings.

Quick Math: How Much Can You Save?

Let's look at a real-world example:

Scenario: You're a retiree with $80,000 in annual income from pensions, Social Security, and retirement account withdrawals.

• In California (top rate 13.3% for high earners, but lower brackets apply): You might pay $3,000-$5,000 in state income tax

• In New York (top rate 10.9%): Similar range of $3,000-$5,000

• In Florida, Texas, or Nevada: $0 in state income tax

Over a 20-year retirement, that's $60,000-$100,000 in savings that stays in your pocket.

Florida

• Why No Income Tax: Constitutional prohibition; relies on tourism, sales tax, and property tax

• Effective Property Tax Rate: 0.71%

• Sales Tax: 6% state (local additions bring it to ~7-7.5% in most areas)

• Best For: Retirees, snowbirds, beach lovers

• Population Trend: Gaining 819,000 net residents from 2020-2023 – the #1 destination for interstate movers

Florida consistently ranks as the top relocation destination for Americans leaving high-tax states. With no state income tax, warm weather year-round, and an abundance of active adult communities, the Sunshine State has become America's retirement capital. Communities like The Villages in Central Florida have attracted over 140,000 residents, partly due to Florida's tax advantages.

Trade-offs: Higher property insurance costs, hurricane risk, hot/humid summers

Texas

• Why No Income Tax: Constitutional ban; funded by oil/gas revenue, high sales and property taxes

• Effective Property Tax Rate: 1.47% (one of the highest in the nation)

• Sales Tax: 6.25% state (local additions bring it to 8.25% in many areas)

• Best For: Job seekers, families, those wanting big cities without income tax

• Population Trend: Gained 656,000 net residents from 2020-2023 – #2 destination

Texas compensates for its lack of income tax with the nation's sixth-highest property tax rate. While you'll save on income tax, homeowners often face property tax bills of $5,000-$15,000 annually depending on home value and location.

Trade-offs: Very high property taxes, hot summers, property insurance can be expensive

Nevada

• Why No Income Tax: Tourism and gambling revenue fund state operations

• Effective Property Tax Rate: 0.50% (fourth-lowest nationally)

• Sales Tax: 6.85% state (up to 8.375% with local)

• Best For: Outdoor enthusiasts, those wanting proximity to California without CA taxes

• Population Trend: Steady influx, particularly from California

Nevada offers the best of both worlds: no income tax AND relatively low property taxes. The state's gaming and tourism industries generate substantial revenue, reducing reliance on resident taxation.

Trade-offs: Desert climate, limited water resources, Las Vegas dominates the state economy

Tennessee

• Why No Income Tax: Phased out Hall Income Tax (on dividends/interest) completely as of 202

• Effective Property Tax Rate: 0.48% (among the lowest)

• Sales Tax: 7% state (local additions make it 9.56% combined – second-highest nationally)

• Best For: Music lovers, those wanting four seasons with mild winters

• Population Trend: Gained 207,000 net residents 2020-2023

Tennessee eliminated its investment income tax just a few years ago, making it fully tax-free. The state compensates with one of the nation's highest sales tax rates, but the overall tax burden remains low for most residents.

Trade-offs: Very high sales tax, occasional severe weather (tornadoes)

Wyoming

• Why No Income Tax: Natural resource extraction (coal, oil, gas) funds state budget

• Effective Property Tax Rate: 0.55% (very low)

• Sales Tax: 5.5% (one of the lowest)

• Best For: Outdoor enthusiasts, those wanting low overall tax burden

• Population Trend: Slow, steady growth

Wyoming boasts the most taxpayer-friendly environment overall: no income tax, low property tax, low sales tax, and no estate tax. The sparsely populated state can maintain services through mineral extraction taxes.

Trade-offs: Harsh winters, remote location, limited healthcare access in rural areas, small population

Alaska

• Why No Income Tax: Oil revenue funds state operations; residents even receive annual dividends

• Effective Property Tax Rate: Varies (some areas have none)

• Sales Tax: No state sales tax (some localities impose up to 7%)

• Best For: Adventurers, those wanting the Permanent Fund Dividend

• Unique Benefit: Alaska Permanent Fund pays residents ~$1,000-$2,000 annually

Alaska is unique: no income tax, no state sales tax, AND they pay you to live there through the Permanent Fund Dividend (funded by oil revenue). Large portions of the state have no property tax either due to sparse population.

Trade-offs: Extreme weather, high cost of living (everything must be shipped in), remote location, long winters

South Dakota

• Why No Income Tax: Balanced budget, tourism, agriculture

• Effective Property Tax Rate: 1.01%

• Sales Tax: 4.2% state (6.11% average with local)

• Best For: Those wanting small-town America, low cost of living

• Tax Competitiveness: Ranks #2 nationally in Tax Foundation's index

South Dakota ranks second only to Wyoming in overall tax competitiveness. The state has no corporate income tax either, making it attractive for businesses and retirees alike.

Trade-offs: Harsh winters, limited cultural amenities, smaller cities

New Hampshire

• Why No Income Tax (New): As of January 2025, fully eliminated the 3% tax on dividends/interest

• Effective Property Tax Rate: 1.93% (highest among no-income-tax states)

• Sales Tax: 0% (no state sales tax – one of only 5 states)

• Best For: High earners with investment income, those wanting New England lifestyle

• Unique: No income tax AND no sales tax (rare combination)

New Hampshire joined the ranks of income-tax-free states in 2025, eliminating its final 3% tax on investment income. Combined with no sales tax, it offers a unique tax profile. However, property taxes are quite high to compensate.

Trade-offs: Very high property taxes, expensive housing, cold winters

Washington

• Why No Income Tax: Sales tax and business taxes fund state operations

• Effective Property Tax Rate: 0.76%

• Sales Tax: 6.5% state (average 9.38% with local)

• Best For: Tech workers, outdoor enthusiasts, those wanting Pacific Northwest lifestyle

• Note: 7% capital gains tax applies to investment income over $250,000

Washington technically has a capital gains tax (7% on gains exceeding $250,000 annually), but wages and salaries are not taxed. The state has high sales taxes but moderate property taxes.

Trade-offs: High cost of living (especially Seattle area), rainy weather, capital gains tax for investors

States without income tax don't offer services for free – they fund government operations through alternative revenue sources:

Property Taxes

Several no-income-tax states have higher-than-average property taxes:

• Texas: 1.47% (6th highest nationally)

• New Hampshire: 1.93% (4th highest nationally)

• Alaska: Up to 1.22% in some areas

What this means: On a $400,000 home in Texas, you'll pay $5,880 annually in property taxes vs. $2,040 in South Carolina (0.51% rate).

Sales Taxes

High sales taxes are common in income-tax-free states:

• Tennessee: 9.56% combined (2nd highest)

• Arkansas: 9.46% combined (3rd highest)

• Washington: 9.38% combined average

What this means: If you spend $50,000 annually on taxable goods, Tennessee's 9.56% rate costs you $4,780 vs. $2,500 in a 5% state.

Other Taxes

• Gas taxes (Washington: 49.4 cents/gallon – among highest)

• Sin taxes (beer, cigarettes, alcohol)

• Excise taxes

• Higher vehicle registration fees

Retirees with Substantial Retirement Income

If you're drawing $60,000+ annually from pensions, 401(k)s, and Social Security, states with no income tax can save you $3,000-$10,000 per year.

High Earners

Six-figure earners in high-tax states like California or New York can save $10,000-$30,000+ annually by relocating to a no-income-tax state.

Remote Workers

If your employer is in a high-tax state but you can work anywhere, moving to a tax-free state maximizes your take-home pay without sacrificing your income.

Business Owners and Self-Employed

Many no-income-tax states also have favorable business tax climates (Texas, Florida, Nevada, Wyoming).

Retirees with Investment Income

With no state tax on capital gains, dividends, or interest (except Washington's limited capital gains tax), your investment portfolio stretches further.

Low-Income Earners

If you earn under $40,000 annually, you might pay little-to-no state income tax anyway due to standard deductions and credits. Higher sales and property taxes could make no-income-tax states more expensive overall.

Families with School-Age Children

Some no-income-tax states rank lower in education funding. Florida, for example, spends $12,415 per student vs. the national average of $17,277.

Those Who Value Public Services

Less tax revenue can mean:

• Fewer social programs

• Older infrastructure

• Limited public transportation

• Strained healthcare systems in rural areas

Homeowners in High-Property-Tax Areas

If you're moving to Texas or New Hampshire, make sure the property tax savings don't erase your income tax savings.

Recent data shows a clear trend: Americans are fleeing high-tax states for low-tax destinations.

Between April 2020 and June 2023, high-tax states lost 2.8 million net residents to low-tax states – enough to fill every NFL stadium and NBA arena combined.

Top Gainers (No Income Tax):

1. Florida: +819,000 net residents

2. Texas: +656,000 net residents

3. Tennessee: +207,000 net residents

Top Losers (High Income Tax):

1. California (-1.2 million): 13.3% top rate

2. New York (-883,000): 10.9% top rate

3. Illinois: 4.95% flat rate

4. New Jersey: 10.75% top rate

Even middle-income and low-income Americans are moving from high-tax to low-tax states, suggesting tax climate affects migration patterns across all income levels.

Before relocating to a no-income-tax state, consider:

1. What's my total tax burden? Don't just look at income tax – factor in property, sales, and other taxes.

2. How will my cost of living change? Use cost-of-living calculators to compare housing, healthcare, groceries, and utilities.

3. What about healthcare? Especially important for retirees. Check availability of quality hospitals and specialists.

4. Do I want to be there long-term? Consider climate, culture, proximity to family, and lifestyle fit.

5. What's my income source? W-2 wages benefit most; investment income has different considerations.

6. Am I retiring or still working? Retirees benefit immediately; workers should consider career opportunities.

Living in a state with no income tax can provide substantial financial benefits, particularly for retirees and high earners. Florida and Texas lead the way in population growth for good reason: they offer income-tax-free living in dynamic, growing states with diverse economies.

However, the decision isn't just about taxes. Quality of life, healthcare access, proximity to family, climate preferences, and overall cost of living matter just as much – if not more – than tax savings alone.

The smartest move? Run the numbers for your specific situation. Calculate your total tax burden (income + property + sales taxes), factor in cost of living, and consider lifestyle fit. For many retirees and remote workers, the math clearly favors no-income-tax states. For others, the savings might not justify the trade-offs.

The good news? In 2025, you have nine excellent options to explore – each with its own unique benefits and character. Whether you're drawn to Florida's beaches, Texas's cities, Tennessee's music scene, or Wyoming's mountains, you can find a tax-free state that fits your vision of retirement or remote work lifestyle.