Nine states currently do not levy a broad-based state income tax on wages and salaries. These states offer residents the advantage of no state income tax, which can impact overall financial planning and take-home pay.
States Without a State Income Tax
The states that do not impose a state income tax are:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
While these states generally do not tax personal income, it's important to note variations in how they generate revenue. Some might have higher sales taxes, property taxes, or other specific taxes to compensate for the lack of income tax.
Important Considerations for Tax-Free States
Even in states without a general income tax, there can be nuances:
- Washington State: While Washington does not levy a state income tax on wages, it does impose a state capital gains tax on certain high earners. This is an important distinction for residents with significant investment income.
- New Hampshire: Historically, New Hampshire only taxed interest and dividend income, not wages. This tax on interest and dividends is being phased out, further reducing its tax burden.
- Tennessee: Similar to New Hampshire, Tennessee previously taxed interest and dividends but has since phased out this tax as of January 1, 2021, meaning it no longer taxes earned income or investment income.
Here's a quick overview of these states:
| State | State Income Tax | Notable Tax Nuances |
|---|---|---|
| Alaska | No | No statewide sales tax, but local sales taxes exist. |
| Florida | No | Relies on sales and tourism taxes. |
| Nevada | No | Revenue from gaming and sales taxes. |
| New Hampshire | No | Formerly taxed interest/dividends; phasing out. |
| South Dakota | No | Relies on sales and property taxes. |
| Tennessee | No | Formerly taxed interest/dividends; now phased out. |
| Texas | No | Relies on property and sales taxes. |
| Washington | No | Levies a capital gains tax on certain high earners. |
| Wyoming | No | Relies on sales, property, and mineral extraction taxes. |
Understanding these specific details helps to provide a complete picture of the tax landscape in states often referred to as "tax-free."
