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Personal Finance Taxes Tax Software
Written by Tanza Loudenback; edited by Richard Richtmyer
Updated
2024-02-05T21:27:38Z
This article was expert reviewed byLisa Niser, EA, an enrolled agent and tax advisor.
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- Most Americans file a state income tax return and a federal income tax return.
- As of 2023, the states with no regular income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
- New Hampshire and Washington still do tax certain investment earnings, so some residents might have to file a state tax return this spring.
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In general, you have to file a federal tax return if your total income is more than the standard deduction, which varies based on your age and filing status. Some instances require you to file even if your income is less than the standard deduction, such as having self-employment income, being claimed as a dependent on someone's tax return and having earned or unearned income above certain thresholds, and filing separately as a married couple with gross income of $5 or more.
See Personal Finance Insider's picks for best tax software >>
Some people, however, are off the hook when it comes to filing a state tax return.
US states with no income tax
That's because nine US states don't impose state tax on regular income: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
However, New Hampshire and Washington do still tax certain investment income. New Hampshire doesn't tax W-2 income, and tax on investment income is being gradually phased out in 1 percentage point increments each year until it's fully repealed for tax years after 2026. Washington collects a 7% tax on capital gains income over $250,000. As of 2021, Tennessee fully repealed its state income tax on income earned from interest and dividends.
The states that do tax income have either a flat income tax — meaning everyone, regardless of how much they earn, pays the same percentage of their income to the government — or a progressive income tax, which means their tax rate is determined by how much they earn.
Other kinds of taxes can make up the difference
But living in a state with no income tax doesn't necessarily mean you're getting off scot-free. Texas and New Hampshire, for instance, may not tax your earnings, but they do have some of the highest property tax rates in the country, which could affect you if you're a property owner.
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TurboTax is among the most expensive options for filing taxes online, but offers a high-quality user interface and access to experts. It's especially valuable for self-employed filers who use QuickBooks integration.
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Likewise, Tennessee doesn't tax your paycheck, but it will get you in the checkout line. The state has one of the highest maximum state and local sales tax rates in the country at 9.55%, according to the Tax Foundation.
Still, everyone is subject to federal income taxes regardless of where you live. How much you pay depends on how much you earn, your filing status, and what deductions are available to you.
After you file your taxes, you may get a state tax refund or a federal tax refund — or both if you live in a state that taxes income. The IRS says the fastest way to get your tax refund is the method already used by most taxpayers: filing electronically and selecting direct deposit as the method for receiving your money.
States with no income tax FAQs
What state has 0% income tax?
As of 2023, the nine states without a regular income tax were: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. However, New Hampshire and Washington each taxed certain investment income.
Is it better to live in a state with no income tax?
While you may find some financial benefits of living in a state with no income tax, remember that all states need to raise revenue. In some income-tax free states you may find that you're paying much more in property taxes, sales taxes, as well as excise taxes on things like alcohol and tobacco.
How does it work in states with no income tax?
If you live in a state with no income tax, you won't have to pay tax on money you earned or collected from retirement plans. You do still have to file a federal tax return. In New Hampshire and Washington, while you won't pay tax on most income, you may have to pay tax on certain investment earnings.
Tanza is a CFP® professional and former correspondent for Personal Finance Insider. She broke down personal finance news and wrote about taxes, investing, retirement, wealth building, and debt management. She helmed a biweekly newsletter and a column answering reader questions about money. Tanza is the author of two ebooks, A Guide to Financial Planners and "The One-Month Plan to Master your Money." In 2020, Tanza was the editorial lead on Master Your Money, a yearlong original series providing financial tools, advice, and inspiration to millennials. Tanza joined Business Insider in June 2015 and is an alumna of Elon University, where she studied journalism and Italian. She is based in Los Angeles.
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