Up to the year 2025, nine states in America have eliminated personal state income tax, which allows citizens to keep more of their earnings without the usual deductions deducted from them at the state level. This kind of tax system has remained one of the top issues for the majority of Americans with increasing living costs and state taxation. If you ever wondered if your state is on this list — and what it actually means — here is an extensive guide.
The nine states that do not have State Income Tax in 2025
States where citizens do not pay personal state income tax on wages are:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
Among these, Washington does not tax income earned but does have a long-term capital gains tax for the wealthy, so it’s an exception in the group.
Most significantly, New Hampshire abolished its interest and dividends tax effective January 1, 2025, and it is officially a no-income-tax state like the rest.
What does no State Income Tax really mean?
Residing in a non-income tax state means that you do not pay directly from your salary or wages to the state government. This equals greater take-home pay compared to states with high-cost income tax, such as California or New York.
It does not, however, mean that you are tax-free overall. These states typically compensate with other types of taxes such as:
- Higher sales taxes
- Property taxes
- Business taxes
- Fees and excise taxes
For instance, Florida imposes no income tax but a state-wide general sales tax of 6 percent, added to with local supplements.
Why are Americans relocating to these states?
The incentive to relocate to no-income-tax states is motivated by a multitude of reasons:
- Lower overall tax burden: Most appealing to high-income-earners and retirees.
- Cost of living considerations: Although some of these states charge higher real estate or sales tax rates, the absence of income tax can balance out expenditures.
- Retirement planning: Florida and Texas, among others, are retiree-friendly because they do not tax retirement earnings or Social Security benefits.
- Job market and lifestyle: Most no-income-tax states have strong economies and good climates (e.g., Florida, Texas, Nevada).
Caveats and considerations
- Residency requirements: You typically have to claim legal residency and live there most of the year to take advantage of the no state income tax.
- Other tax burdens: Federal expenses remain with or without the state income tax.
- Public services and infrastructure: Non-income-tax states would fund services in some way, which would impact education, healthcare, and transportation infrastructure.
- Capital gains taxation: Washington (not taxing wages at all) has a tax on extremely high capital gains, which impacts high earners who are investors.
- Flat Tax States: Arizona, Colorado, Georgia, and others have a single flat rate income tax.
- Graduated Tax States: Most states like California and New York have progressive tax brackets based on the income.
How the tax-free states finance their budgets
Without income tax revenues, these states effectively depend on:
- Sales and use taxes
- Property taxes
- Tourism-related revenues (in Florida and Nevada)
- Natural resource revenues (in Alaska)
This would imply some of these states may have increased higher sales or property tax rates to replace declining income tax revenue.
