Texas and 7 Other States That Don't Levy State Income Tax: What This Means for Your Wallet

The Complete List of Income Tax-Free States

If you’re hunting for ways to maximize your earnings, here’s something worth knowing: eight U.S. states have zero state income tax obligations. These are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming.

Washington often appears in similar discussions, and for good reason. Technically, Washington has no general income tax for most residents. However, there’s a catch: investments that generate capital gains exceeding $278,000 (excluding real estate) face a 7% tax on the excess. This distinction matters for investors with significant portfolios.

The Trade-Off: How States Make Up Lost Revenue

Here’s the reality that often gets overlooked: states running without income tax don’t simply forgo revenue. They compensate through other taxation mechanisms.

Consider Texas, which operates without state income tax but relies heavily on property taxes to fund state services. New Hampshire follows a similar pattern. Tennessee has taken a different route, imposing one of the nation’s steepest sales taxes at 7% on most goods. Nevada has built its tax base on tourism and gaming revenue. This means living in these states might save you on income tax while costing you elsewhere through sales, property, or other levies.

The bottom line? An income tax-free state isn’t necessarily a low-tax state overall.

Retirement Income Gets the Same Treatment

One genuine advantage these states offer is their approach to retirement accounts and benefits. Residents of Texas and the other income tax-free states enjoy exemptions on 401(k) distributions, IRA withdrawals, pension payments, and Social Security benefits at the state level.

This can be meaningful for retirees on fixed incomes who want to stretch their savings further. However, this state-level relief doesn’t insulate you from federal obligations.

Federal Taxes Still Apply—No Matter Where You Live

The critical caveat: choosing to live in Texas or another no-tax state won’t reduce your federal income tax liability. The IRS operates independently of state tax systems, and all U.S. citizens must pay federal taxes regardless of their state of residence.

For 2026, federal tax brackets continue to define your obligations. Single filers entering the 22% bracket start at $50,401 in taxable income, while married couples filing jointly enter that tier at $100,801. The top federal rate of 37% applies to income exceeding $640,600 for single filers and $768,700 for married filers.

Making the Decision

When evaluating where to live or retire, state income tax policy deserves consideration—especially if you’re managing a fixed income in retirement. However, it shouldn’t be your sole deciding factor. Looking at the complete tax picture, including property taxes, sales taxes, and cost of living, gives you a more accurate sense of whether relocating to Texas or another income tax-free state actually benefits your finances.

For those in their later years or approaching retirement, understanding how these tax structures interact with federal obligations is essential to effective financial planning.