Taxes represent an unavoidable aspect of financial life for residents throughout the United States. Beyond the federal income tax, individuals must navigate various forms of state and local taxation, ranging from sales taxes to taxes on property and inheritances. These charges fund essential public services but often evoke significant dissatisfaction among taxpayers.
Within this complex tax landscape, a subset of states takes a notably different approach by abstaining from imposing a broad-based state income tax. As of the end of 2025, eight states have established policies whereby residents do not pay state income tax on earned wages. This article examines these states, their alternative methods of raising revenue, and the federal tax implications that continue to affect all citizens, regardless of their state of residence.
The Eight States Without Broad-Based Income Tax
The states that do not levy a general state income tax on wage earnings include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. These states use divergent fiscal models to generate revenue without relying on income taxes.
A closer scrutiny reveals that Washington, while generally exempting wages from income tax, does impose a specific tax on capital gains income exceeding $278,000 for most asset types, excluding real estate. This means that affluent residents with substantial capital gains in Washington remain subject to a 7% state tax on amounts above this threshold.
Revenue Alternatives in the Absence of Income Tax
Without the consistent inflow from income taxes, these states must compensate through other forms of taxation or revenue generation. For example:
- Property Taxes: Both Texas and New Hampshire maintain comparatively higher property tax rates to offset reduced income tax revenues.
- Sales Taxes: Tennessee experiences some of the country’s highest sales tax rates, with a general rate of 7% on most goods.
- Specialized Taxes: Nevada leans heavily on revenues from tourism and gaming industries, taxing these sectors to support state budgets.
Federal Taxes Apply Ubiquitously
Despite the advantage of living in a state without a general state income tax, residents are still obligated to fulfill their federal tax responsibilities. Beginning in 2026, federal income tax rates are structured in progressive brackets, applying to single filers, married couples filing jointly, and heads of household with specific income thresholds at each level.
The federal tax brackets for 2026 are as follows:
| Tax Rate | Single Filers | Married Filing Jointly | Head of Household |
|---|---|---|---|
| 10% | $0 to $12,400 | $0 to $24,800 | $0 to $17,700 |
| 12% | $12,401 to $50,400 | $24,801 to $100,800 | $17,701 to $67,450 |
| 22% | $50,401 to $105,700 | $100,801 to $211,400 | $67,451 to $105,700 |
| 24% | $105,701 to $201,775 | $211,401 to $403,550 | $105,701 to $201,750 |
| 32% | $201,776 to $256,225 | $403,551 to $512,450 | $201,751 to $256,200 |
| 35% | $256,226 to $640,600 | $512,451 to $768,700 | $256,201 to $640,600 |
| 37% | Over $640,600 | Over $768,700 | Over $640,600 |
Considerations on Choosing a State with No Income Tax
Choosing a place to live involves a multitude of factors, not least among them the tax landscape. While residing in a state free from state income tax may appear advantageous for maximizing disposable income, it is critical to comprehend the broader context. This includes the need to absorb potentially higher property or sales taxes and the certainty of ongoing federal income tax obligations.
Moreover, the issue holds heightened significance for retirees or those on fixed incomes who are seeking to stretch their financial resources. Fortunately, many of the eight states without income tax also exempt retirement income, such as distributions from 401(k) plans, IRAs, pensions, and Social Security benefits, which can offer some relief to this demographic.
In conclusion, while living in states without a general state income tax may provide financial benefits in certain respects, the absence of this tax does not equate to a tax-free existence. Residents must weigh the structure of other taxes and federal liabilities when evaluating how far their income can go in these states.