State Income Tax Rates Compared: Which States Have No Income Tax?

The 9 States with No Income Tax

Nine states currently impose no state income tax on earned wages, making them popular destinations for workers and retirees looking to maximize their take-home pay. These states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Each of these states has its own approach to generating the revenue that other states collect through income taxes. Alaska is unique in that it not only charges no income tax and no state sales tax, but it actually pays residents an annual dividend from its Permanent Fund, which is funded by oil revenue. In recent years, the Alaska Permanent Fund Dividend has ranged from approximately $1,000 to $3,200 per person per year.

Texas and Florida, two of the most populous no-income-tax states, rely heavily on sales taxes and property taxes to fund state and local services. Texas has one of the highest effective property tax rates in the country at approximately 1.6 to 1.8 percent, which means a homeowner with a $300,000 home could pay $5,000 to $5,400 per year in property taxes alone. Florida combines a 6 percent state sales tax (with local additions bringing it to 7 to 8.5 percent) with property taxes that, while lower than Texas, are still significant.

Washington state has no income tax on wages but does impose a 7 percent capital gains tax on the sale of stocks, bonds, and other capital assets exceeding $250,000. The state also has one of the highest combined sales tax rates in the country, frequently reaching 10 percent or more in major cities like Seattle. Nevada generates substantial revenue from gaming taxes and tourism-related fees, while South Dakota and Wyoming benefit from relatively small populations and modest spending needs.

New Hampshire and Tennessee deserve special mention. New Hampshire historically taxed interest and dividend income at 5 percent but phased out this tax completely as of January 2025. Tennessee similarly phased out its Hall Tax on investment income in 2021. Neither state taxes earned wages, but residents should be aware that other types of income may have different treatment.

Flat Tax vs. Progressive Tax States

Among the 41 states (plus the District of Columbia) that do levy an income tax, there are two fundamental approaches: flat rate systems and progressive (graduated) systems. Understanding the difference is crucial for estimating your actual tax burden.

Flat Tax States

A flat tax state applies the same rate to all taxable income regardless of how much you earn. This means a person earning $30,000 and a person earning $300,000 pay the same percentage of their income in state taxes. As of 2025, approximately 12 states use a flat income tax rate. Notable flat-tax states include Illinois at 4.95 percent, Colorado at 4.40 percent, Michigan at 4.25 percent, Indiana at 3.05 percent, Pennsylvania at 3.07 percent, and North Carolina at 4.50 percent (scheduled to decrease in coming years). The simplicity of a flat tax makes it easy to calculate your state tax liability: just multiply your taxable income by the rate.

Progressive Tax States

Progressive tax states use multiple tax brackets, with the rate increasing as income rises. This means you pay a lower rate on your first dollars of income and a higher rate on your top dollars. For example, California's progressive system has ten tax brackets ranging from 1 percent on income up to approximately $10,000 to 13.3 percent on income exceeding $1 million. New York's system ranges from 4 percent to 10.9 percent. Hawaii ranges from 1.4 percent to 11 percent.

A common misconception about progressive tax systems is that if you move into a higher tax bracket, all of your income is taxed at the higher rate. This is not how it works. Only the income that falls within each bracket is taxed at that bracket's rate. So if a state has a 5 percent rate on income up to $50,000 and an 8 percent rate on income above $50,000, someone earning $60,000 would pay 5 percent on the first $50,000 ($2,500) and 8 percent on the remaining $10,000 ($800), for a total of $3,300, which is an effective rate of 5.5 percent rather than 8 percent.

States with the Highest Income Tax Rates

If you are a high earner, state income taxes can take a significant bite out of your income. The states with the highest top marginal rates include several of the nation's most populous states, which means they affect a large number of taxpayers.

California leads the nation with a top rate of 13.3 percent on income exceeding $1 million. Including the state's Mental Health Services Tax of 1 percent on income over $1 million, the top combined rate can reach 14.4 percent. Hawaii follows with a top rate of 11 percent, and New Jersey charges 10.75 percent on income over $1 million. Oregon imposes a top rate of 9.9 percent, Minnesota charges 9.85 percent, and New York's top rate is 10.9 percent (with an additional New York City income tax of up to 3.876 percent for city residents).

For a high earner making $500,000 per year, the difference between living in California and Texas could mean over $40,000 per year in state income taxes alone. This is a major reason why some high earners choose to relocate to no-income-tax states, particularly with the growth of remote work options that allow location flexibility.

States with the Lowest Income Tax Rates

Among states that do levy an income tax, several stand out for their low rates. North Dakota has one of the lowest top rates at 2.5 percent. Arizona charges a flat rate of 2.5 percent. Indiana charges 3.05 percent, and Pennsylvania imposes a flat rate of 3.07 percent with no local income tax deductions. These states offer a middle ground between the no-income-tax states and the high-tax states like California and New York.

Several states have been actively reducing their income tax rates in recent years. North Carolina has been gradually lowering its flat rate and has a scheduled path to further reductions. Iowa has been consolidating its brackets and lowering rates. Idaho, Mississippi, and several other states have also enacted rate reductions. This trend toward lower rates is driven partly by competition among states for residents and businesses, particularly in an era when remote work has made relocation easier.

How State Taxes Affect Your Take-Home Pay

To illustrate the real-world impact of state income taxes, consider three scenarios at different income levels. These estimates use simplified calculations and do not account for all possible deductions and credits, but they provide a useful comparison.

At $50,000 Annual Income

In Texas (no income tax), your state tax burden is $0. In Illinois (flat 4.95 percent), you would pay approximately $2,475 in state income tax. In California, with its progressive system, your effective state tax rate would be roughly 4 percent, resulting in about $2,000 in state taxes. The difference between the best and worst case is roughly $2,500 per year, or about $200 per month.

At $100,000 Annual Income

In a no-income-tax state, you pay $0. In Illinois, you would pay approximately $4,950. In California, your effective rate would be roughly 6 percent, costing about $6,000. In New York (depending on locality), your state tax could be $5,000 to $7,500. The annual difference between the highest and lowest tax states grows to $5,000 to $7,500.

At $250,000 Annual Income

At higher incomes, the differences become dramatic. A no-income-tax state saves you the full amount. In California, your effective rate might reach 8 to 9 percent, costing $20,000 to $22,500 in state taxes alone. In New York City, combined state and city taxes could approach $20,000 to $25,000. At this income level, state tax choices can mean a difference of over $20,000 per year in take-home pay.

Use our paycheck calculator to see exactly how state taxes affect your specific income in any state.

Best States for Different Income Levels

The optimal state from a tax perspective depends on your specific income level and the type of income you earn. Lower-income workers are generally less affected by income tax differences but may be more sensitive to sales taxes on everyday purchases. Middle-income earners often benefit from flat-rate states with moderate rates. High earners stand to save the most by living in no-income-tax states.

However, taxes are only one part of the equation. You must also consider the cost of housing (often the single largest expense), quality of public schools and infrastructure, job opportunities and salary levels in your field, climate and lifestyle preferences, proximity to family and social networks, and access to healthcare and other services. A state with no income tax but very high housing costs could actually leave you with less disposable income than a state with moderate taxes and affordable housing.

For retirees, the calculus is different because Social Security benefits, pension income, and investment withdrawals are treated differently by different states. Some states exempt Social Security from state income tax entirely, while others tax it partially or fully. States like Florida, which has no income tax, no estate tax, and a warm climate, have long been popular retirement destinations for these reasons.

To determine the true tax impact of any particular state, consider using a comprehensive comparison tool. Our salary calculator can help you compare net income across different states for your specific situation.

The Trend Toward Lower State Income Taxes

There is a notable trend across the United States toward reducing or eliminating state income taxes. Several states have enacted significant rate reductions in recent years, and a few have discussed the possibility of eliminating their income tax entirely. This trend is driven by several factors.

Interstate competition has intensified as remote work makes it easier for workers and businesses to relocate. States that have seen population outflows, particularly high-tax states like California, New York, and Illinois, are under pressure to reduce tax burdens to stem migration. Meanwhile, states like Texas and Florida have used their no-income-tax status as a marketing advantage to attract new residents and businesses.

Federal tax policy has also played a role. The Tax Cuts and Jobs Act of 2017 capped the state and local tax (SALT) deduction at $10,000, effectively increasing the cost of living in high-tax states for many taxpayers. This made the tax savings from relocating to a lower-tax state even more significant, particularly for high earners who previously deducted their full state tax payments on their federal returns.

Whether this trend toward lower state income taxes continues will depend on state budget conditions, political leadership, and the broader economic environment. States must balance the desire for competitive tax rates with the need to fund public services, infrastructure, education, and social programs.