States With No Income Tax (2026): What Employers Still Need to Know About Payrol
No state income tax doesn’t mean no payroll obligations. See which states skip income tax, what SUI and local taxes still apply, and what multi-state employers need to track.
The income tax rates vary depending on where you live, but did you know there are seven states with no income tax? Instead, multi-state payroll compliance can be complex beacuse states fund their local operations through other means. The following states do not levy a personal income tax on wages:
- Alaska — No state income tax. Note: Alaska has no statewide sales tax either, but many municipalities levy local sales taxes.
- Florida — No state income tax. With its sunny temperatures and inviting beaches, Florida hauls in its revenue from tourism-related sales tax, and above average property taxes.
- Nevada — No state income tax. As the home to Las Vegas and Reno, Nevada’s state revenue is comprised mostly from gambling-related fees and taxes, as well as sales tax.
- New Hampshire — No tax on wages. Note: NH does tax interest and dividends income, though this tax is being phased out.
- South Dakota — No state income tax. Personal taxes, property taxes, cigarette excises, bank franchises, ore taxes, and energy mineral severance are examples of taxes South Dakotans pay to help drive revenue to their state.
- Tennessee — No state income tax. Tennessee eliminated its tax on interest and dividend income effective 2021.
- Texas — No state income tax. Not surprising, local revenue in the Lone Star States comes from its oil and gas royalties. Like Washington, residents pay higher sales tax, too.
- Washington — No state income tax on wages. To make up for no state income tax, Washington residents face some of the highest sales and gasoline taxes in the United States.
- Wyoming — No state income tax. Wyoming also doesn’t have a corporate income tax, so much of the state’s revenue comes from coal mining and property taxes.
Other states that withhold less than the norm are New Hampshire and Tennessee. New Hampshire does not tax an individual's W-2 wages, but does tax income from dividends and interest at 5%. Likewise, Tennessee does not tax earned income, but taxes dividends and interest at 6%.
Multi-State Implications: When No-Income-Tax Meets Income-Tax States
When an employee lives in a no-income-tax state but works in a state that does levy income tax, the work state generally requires withholding. There’s no reciprocity agreement benefit because the residence state has nothing to exempt.
The reverse scenario — an employee living in an income-tax state but working in a no-income-tax state — means the employee still owes income tax to their state of residence. The employer may need to withhold for the residence state even though the work state doesn’t require it.
For payroll platforms, the system must correctly identify that no state income tax withholding is required for the work state while still applying the residence state’s withholding rules when applicable.
Book a demo to see how Symmetry Tax Engine scales compliance without engineering lift.
Which states have no income tax?
Alaska, Florida, Nevada, New Hampshire (no tax on wages), South Dakota, Tennessee, Texas, Washington (no tax on wages), and Wyoming do not levy a personal income tax on wages.
Do no-income-tax states still have payroll taxes?
Yes. Employers in every state — including those without income tax — must pay FICA (Social Security and Medicare), FUTA, and state unemployment insurance (SUI). Alaska also requires employee SUI contributions. Some no-income-tax states have local taxes as well.
What happens when an employee in a no-income-tax state works for a company in an income-tax state?
If the employee works in a state with income tax, the work state generally requires withholding regardless of where the employee lives. If the employee works remotely from a no-income-tax state, the work state typically cannot tax them — but some states have convenience-of-the-employer rules that may apply.