Here, we’ve rounded up the states without income tax. But when you peel back the layers, you’ll find that residents aren’t exactly living tax-free.

IMPORTANT: The U.S. government has extended tax season, pushing the deadline back to July 15.

What states have no income tax?

1. Alaska

Grazing moose near Anchorage, Alaska
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Moose near Anchorage, Alaska

Alaskans take great pride in their tax-free status. Not only is there no income tax, but the 49th state has no state sales tax either.

Alaska even goes a step further. Every resident receives an annual payment from the Alaska Permanent Fund Corporation. Funded by oil revenues, this dividend fluctuates each year and was $1,600 for 2018.

Still, despite the lack of income tax, life can get expensive in Alaska. Because it’s so remote, everything from gasoline to groceries, clothes and medical care is imported or more expensive than in other states.

Alaska taxes petroleum production and at the pump
Kyle Waters / Shutterstock
Alaska taxes petroleum production and at the pump

Without an income tax, Alaska’s funding depends on petroleum and property taxes.

In fact, Alaska has one of the highest average property taxes in the country, mostly concentrated in its largest cities.

Although there’s no state sales tax, local municipalities and boroughs are allowed to collect a general sales tax of up to 7%. Plus, drivers in Anchorage started paying an extra 10 cents per gallon in taxes at the pump in 2018.

2. Florida

Happy mature couple in Florida
Matthew Ennis / Shutterstock
Floridians are happier when they have more money in their wallets

The Sunshine State is a favorite retirement thanks to its good (if humid!) weather and relaxed lifestyle.

And a part of Florida's allure is its low taxes.

Florida is so anti-income-tax that voters here amended the state constitution in 1924 to bar the state from enacting one.

The Lincoln Road Shopping Mall, Miami Beach
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The Lincoln Road Shopping Mall, Miami Beach

It’s not all sunshine and rainbows: Florida does tax corporations, and sales taxes are 6% or higher. When combined with city, county and local taxes, the total sales tax can be as high as 8%. Yikes!

Florida’s average property tax rate is also relatively high at 1.02%.

Florida is an example of how tax burdens can be shuffled from payroll to other areas.

3. Nevada

Casino Interior and Row of Classic Slot Machines. Las Vegas Gambling Theme.
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Nevada collects more than $1 billion in gaming taxes each year

Nevada residents enjoy not having to pay personal income taxes, and the state doesn't have a corporate income tax either.

No state tax is due on income from Social Security, IRAs, 401(k)s and private or public pensions.

There’s also no inheritance or estate tax, so residents' earthly earnings are safe for the long haul.

Tourists pay hefty taxes in Las Vegas, Nevada
Lucky-photographer / Shutterstock
Tourists pay hefty taxes in Las Vegas, Nevada

The state collects hefty taxes on gambling in Las Vegas, Reno and other gaming meccas in Nevada.

In the past few years, Nevada has collected over $1 billion a year through these taxes, which are largely paid by tourists.

Nevada also collects "sin taxes" — on tobacco and alcohol — a high sales tax, and hotel occupancy taxes. But the state's property taxes are said to be among the lowest in the nation.

4. New Hampshire

First light on the tugboats and waterfront, Piscataqua River, Portsmouth, New Hampshire
Jo Ann Snover / Shutterstock
There's no income tax - but property taxes are high in this pretty state

This one is probably no surprise: The state with the license plates that say "Live Free or Die" is all about small government and low, low taxes.

New Hampshire doesn’t charge residents a wage-based income tax.

As in other states, New Hampshire's tax break extends to income from Social Security, IRAs, pensions and 401(k)s.

Residents pay astronomical property taxes in New Hampshire
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Residents pay astronomical property taxes in New Hampshire

To make up its tax deficit, the state taxes investment income — such as stock dividends and the interest earned on bank accounts — at a flat 5%.

But the tax-averse will be glad to hear that these taxes are being phased out by 2020.

New Hampshire also has crazy-high property taxes at 2.19%, considered the third-highest in the country.

5. South Dakota

Mount Rushmore monument in South Dakota in the morning / Shutterstock
The Mount Rushmore state hasn't had income taxes since 1943

It’s the home of world-famous Mount Rushmore, but here's something else South Dakota is known for: some of the lowest taxes in America.

There’s been no income tax since it was repealed in 1943 — and combined state and local sales taxes are also fairly low at an average of 6.4%, according to the Tax Foundation.

Deadwood, SD. South Dakota collects collects taxes on cigarettes, alcohol and business licenses
Nagel Photography / Shutterstock
You'll pay taxes while shopping in Deadwood, South Dakota

To collect much-needed funds for services, South Dakota collects levies on cigarettes, alcohol and business licenses.

Many services are taxed, and so is food. South Dakota also is cracking down on online shopping: As of the fall 2018, web retailers are now required to charge sales tax, too.

South Dakotans also pay high property taxes, averaging 1.32%.

6. Tennessee

Nashville, Tennessee downtown skyline with Cumberland River in USA
f11photo / Shutterstock
Music-loving Nashville residents don't care for income taxes

Known for its iconic musical history in Memphis and Nashville, the Volunteer State also is an income-tax-free location.

Tennessee doesn’t tax wages, but like New Hampshire, it does tax interest and dividend income. But not for too much longer.

A 2016 law has begun phasing out the investment income tax, and it will disappear in 2020.

Party-loving Tennessee residents pay among the highest sin taxes in the country
Sean Pavone / Shutterstock
Party-loving Tennessee residents pay among the highest sin taxes in the country

To make up the revenue difference, Tennessee charges the third-highest sin taxes in the country, according to The Times of Northwest Indiana.

There’s a 62-cent tax on cigarettes; $4.40 in liquor taxes tacked onto each gallon; a wine tax of $1.21 per gallon; and a $1.29-per-gallon beer tax.

Although residents pay property taxes like everyone else, their average rate is a fantastically low 0.75%, and in one county it's just 0.4%.

7. Texas

The Texas State Capitol Building in downtown Austin, Texas.  Austin is the capital city of Texas.
Brandon Seidel / Shutterstock
Texas's income tax laws can't be changed unless their constitution is amended

There's no state income tax in Texas, and there never will be! That is, unless the state's constitution is amended or rewritten.

Taking some pressure off local retirees, the states also exempts Social Security benefits and all retirement income from taxes.

Cowboys boots on a shelf in a store, aligned
IrynaN / Shutterstock
Texan sales taxes raise the cost of shopping

The Lone Star State must provide services and pay its employees — the money has to come from somewhere.

So, Texas has some of the highest sales and property taxes in the nation.

Shoppers pay sales taxes of up to 8.25%, and Texas has an average property tax of 1.86%, the sixth-highest in America.

8. Washington

Picture Lake and Mount Shuksan,Washington
Galyna Andrushko / Shutterstock
WA residents have access to natural riches and hold on to more of their income

Washington state is a Pacific Northwest beauty — and the home of Amazon, Microsoft and Starbucks. Another fact about Washington is that it has never had a personal income tax.

The state also keeps its hands off income from Social Security, IRAs and pensions, and it doesn’t charge an inheritance tax.

Politicians have occasionally tried to implement an income tax, including a failed effort in 2010. It appears Washingtonians aren’t ready to give up their favorite tax perk just yet.

In Washington, property taxes are through the roof
canadastock / Shutterstock
In Washington, property taxes are through the roof

Instead of collecting income tax, the state funds services through high sales taxes. The average combined state and local sales tax is a whopping 9.4%, the fourth-highest in the U.S.

Local property taxes are both complex and higher than residents would prefer.

In 2018, residents got a big property tax bill, the proceeds of which would fund public schools — but politicians are promising to prune back this tax in 2019.

9. Wyoming

Buffalo Round Up
Martin Castrogiovanni / Shutterstock
Cowboys at work in Wyoming

Nicknamed "The Cowboy State," Wyoming's free-living frontier history is reflected in its lack of a state income tax.

The state doesn’t tax corporate income, either.

If you lived in Wyoming, your retirement savings and pension income would be safe from taxation, too — and so would your estate.

Wyoming collects sales taxes. Jackson Hole, WY
f11photo / Shutterstock
Shopping street in Jackson Hole, Wyoming

As a primarily rural state with a small population, Wyoming has fewer public expenditures than other states.

What revenue it needs, it gets from sales taxes, but these are still lower than in most other states. Wyoming's combined average sales tax is just 5.46%.

Residents also pay an average 0.61% in property taxes — one of the lowest in the nation.

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Advantages of no state income tax

HDR image, Walmart customers check out line, cashier counter - Saugus, Massachusetts USA - February 5, 2018
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The benefits of having no state income tax are easy to identify.

More cash in residents' pockets means more spending money, which stimulates the economy.

But there are clearly some potential downsides to a tax-free state, as you'll see next.

The disadvantages

Gas fuel station with clouds and blue sky
Kwangmoozaa / Shutterstock
Where there's no income tax, states raise other taxes instead

Without income taxes, states may simply shift revenue generation to other areas.

Sales, property and gasoline taxes are typically quite high in these income-tax-friendly states.

More: Stressed as it's your first time filing taxes? Learn how to file your returns.

Other charges such as vehicle registration fees can be steep, and some government services may be lacking since there’s just not enough funding to go around.

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About the Author

Esther Trattner

Esther Trattner

Freelance Contributor

Esther was formerly a freelance contributor to MoneyWise.

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