Escape State Income Tax? Here's What 8 States (and a Ninth Contender) Offer

Which States Let You Skip Income Taxes

If you’re tired of watching your paycheck shrink due to state taxes, there’s some encouraging news: eight U.S. states currently impose zero income tax on residents. These are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. Washington deserves an honorable mention—while it technically has no general income tax, residents earning over $278,000 in capital gains must pay a 7% tax on the excess.

The reason people often wonder whether North Dakota state income tax makes it a ninth option is understandable, but North Dakota does in fact tax income. This makes the eight no-income-tax states even more valuable for those seeking to maximize their take-home earnings.

The Tax Tradeoff: What These States Take Instead

Here’s the reality no one wants to hear: nothing in government comes free. States without income tax don’t sacrifice revenue collection—they simply redirect it elsewhere. Understanding this tradeoff is essential before packing up and moving.

Texas and New Hampshire compensate through elevated property taxes, making homeownership more expensive. Tennessee relies on one of the nation’s highest sales taxes at 7% on most purchases, meaning everyday spending cuts deeper into your wallet. Nevada has built its revenue model around tourism and gaming industries, with visitors effectively subsidizing residents’ lack of income tax.

This tax-shifting strategy creates an important insight: whether you actually save money depends entirely on your personal financial profile. A retiree living modestly might benefit tremendously in Alaska, while a young professional making significant stock trades could face unexpected capital gains taxes in Washington.

Retirement Income Gets Special Treatment

One genuine advantage: residents in these eight states aren’t taxed on retirement income sources. Your 401(k) withdrawals, IRA distributions, pension payments, and Social Security benefits all remain untouched by state taxation.

This makes these states particularly attractive for retirees on fixed incomes. When you’re no longer earning wages, losing income tax liability can meaningfully extend your retirement savings. However, this benefit only addresses state-level concerns—it does nothing to shield you from federal obligations.

Federal Taxes: The Unavoidable Reality

Here’s what dampens the celebration: state-level tax policy is only half the equation. Regardless of where you live, federal taxes apply uniformly across the country. Your national government still collects income tax according to 2026 federal brackets, whether you reside in tax-free Texas or any other state.

For context, federal rates range from 10% on the lowest income bracket up to 37% on earnings exceeding $640,600 for single filers. Married couples filing jointly see the 37% rate kick in above $768,700. These thresholds reset annually, making it worth checking IRS guidance rather than relying on outdated information.

The practical implication: state tax savings might reduce your tax burden by 5-10% in many cases, but federal obligations remain the largest component of most people’s total tax liability.

Making the Location Decision

Choosing where to live solely based on income tax rates is short-sighted. Beyond taxation, you should evaluate cost of living (which includes housing costs often inflated by property taxes), job market conditions, climate preferences, and proximity to family.

That said, tax efficiency deserves a serious place in the decision-making framework, especially if you’re in retirement or considering a major life transition. For those with variable income or substantial investment portfolios, the difference between a high-tax state and a no-income-tax state could represent tens of thousands of dollars annually.

The presence of North Dakota state income tax (typically 2-5.54% depending on bracket) serves as a useful reminder that you cannot assume neighboring states share the same tax policies. Each state’s approach is distinctly different, requiring individualized analysis based on your circumstances.

The Bottom Line

Eight states have successfully eliminated income tax, creating genuine opportunities for tax savings—but only if you understand the full cost structure. Factor in property taxes, sales taxes, and federal obligations. Consider whether your specific income sources (wages, investments, retirement accounts) align with each state’s tax advantages.

For retirees especially, these no-income-tax states can unlock meaningful financial benefits. For younger workers, the calculus becomes more complex. Run the numbers for your situation rather than relying on generalizations, and remember that state tax policy is one variable among many that should influence where you build your financial future.