Nine states collect zero state income tax in 2026 — yet the average retiree who relocates to one of them pays $2,800 more per year in combined property taxes, sales taxes, and fees than they projected before moving, according to Tax Foundation analysis. I moved from Illinois to Tennessee in chasing exactly this promise. Three years later, I understand why the full picture matters more than the headline.
Nine states have no broad-based state income tax in 2026. New Hampshire completed its phase-out of the Interest and Dividends Tax on , joining the list fully. Washington state imposes a 7% capital gains tax on gains above $262,000 — critical for retirees liquidating investments. “No income tax” rarely means “no state taxes.”
The Complete 2026 List — And What Each State Actually Costs Retirees
Read more: Retirement Planning Guide
Here are the nine states with no broad-based income tax heading into the tax year. I researched each one when I was planning my own relocation. The differences inside this list are enormous.
| State | State Sales Tax | Avg. Effective Property Tax | Key Retiree Watch-Out |
|---|---|---|---|
| Alaska | 0% | 1.04% | High cost of living; remote healthcare costs |
| Florida | 6.0% | 0.83% | Homeowners insurance up 40%+ since 2020 |
| Nevada | 6.85% | 0.48% | Healthcare provider shortage in rural areas |
| New Hampshire | 0% | 1.93% | Highest property tax of the nine states |
| South Dakota | 4.5% | 1.08% | Medicaid estate recovery is aggressive |
| Tennessee | 7.0% | 0.64% | Sales tax applies to groceries at reduced rate |
| Texas | 6.25% | 1.60% | Property taxes among highest in the U.S. |
| Washington | 6.5% | 0.84% | 7% capital gains tax above $262,000 |
| Wyoming | 4.0% | 0.55% | Limited Medicare Advantage plan options |
Sources: Tax Foundation 2025–2026 data; Lincoln Institute of Land Policy property tax estimates.
When I landed in Tennessee, I saved roughly $6,800 per year compared to my Illinois income tax bill. But I did not anticipate that Tennessee’s combined state and local sales tax averages 9.55% — the highest average combined rate in the country, per Tax Foundation’s 2025 data. Groceries, prescriptions, medical equipment: the receipts added up fast.
What Changed for the 2026 Filing Season and Who Gets Hit
The filing season carries several updates that affect retirees in no-income-tax states at the federal level. There are several new tax deductions that have been introduced for the 2026 filing season — including enhanced deductions for individuals that affect how much of your Social Security and investment income reaches the IRS. These federal changes do not eliminate state-level exposure from sales and property taxes, but they shift your net picture.
Critically: your 2025 tax year covered a 12-month period. You had no tax liability for 2025 if your total tax was zero or you didn’t have to file an income tax return. Many retirees on fixed Social Security income below the filing threshold still owe nothing federally. Moving to a no-income-tax state on top of that creates a genuine $0 state + near-$0 federal scenario — but only if your income profile fits.
The IRS has also improved communication. The Internal Revenue Service Math and Taxpayer Help Act significantly improves the clarity of math error notices and disaster-related provisions — something that directly affects retirees in Florida, Texas, and Louisiana who have received error letters after hurricane-related deductions.
The IRS Data Book provides a fiscal year statistical overview of the agency’s operations including returns received, revenue collected, and taxpayer services provided — and recent data shows returns from no-income-tax states skewing older, reflecting the ongoing reti
ree migration trend toward no-income-tax states.
The Nine States With No Income Tax in 2026
Read more: 8 States With No Income Tax in 2026: Retirees Save $8,400
As of , nine states levy zero individual income tax. These are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire fully eliminated its tax on interest and dividends on , completing a phase-out that began in 2023. Tennessee finished the same process in .
A tenth state, Texas, has no income tax but voters approved a constitutional amendment in November 2023 making it permanently prohibited. That distinction matters for long-term retirement planning: constitutional bans are harder to reverse than simple statutes.
| State | State Sales Tax | Avg. Local Sales Tax | Median Property Tax Rate | Estate Tax |
|---|---|---|---|---|
| Alaska | 0% | 1.76% | 1.04% | No |
| Florida | 6% | 1.08% | 0.83% | No |
| Nevada | 6.85% | 1.38% | 0.55% | No |
| New Hampshire | 0% | 0% | 1.93% | No |
| South Dakota | 4.2% | 1.90% | 1.08% | No |
| Tennessee | 7% | 2.55% | 0.64% | No |
| Texas | 6.25% | 1.95% | 1.60% | No |
| Washington | 6.5% | 2.73% | 0.98% | Yes — 10% on estates over $2.193M |
| Wyoming | 4% | 1.44% | 0.57% | No |
Sources: Tax Foundation 2026 State Tax Data; Tax Policy Center; state revenue department filings. Property tax rates reflect median effective rates per owner-occupied home.
Hidden Costs That Offset the Income Tax Savings
The income tax savings look impressive on paper. A retired couple drawing $80,000 annually from a pension in California would owe roughly $6,000 in state income tax. Moving to Nevada eliminates that bill. But replacement costs often surface quickly.
1. Property Taxes
Texas carries a median effective property tax rate of 1.60% — among the highest in the nation. On a $350,000 home, that equals $5,600 per year. A comparable California home at 0.75% effective rate costs only $2,625 annually. The gap narrows the income tax advantage significantly. New Hampshire’s rate of 1.93% is the highest among all nine no-income-tax states and partially explains why it ranks low in overall retiree tax burden.
2. Sales Tax Burden on Fixed Incomes
Tennessee’s combined average sales tax reaches 9.55% — the highest in the country according to Tax Foundation 2026 data. For a retiree spending $40,000 on taxable goods and services annually, that generates roughly $3,820 in sales tax — nearly matching what a modest state income tax would cost. Washington’s capital gains tax, enacted in 2022 and upheld by the state Supreme Court in 2023, adds complexity for retirees with investment accounts.
3. Insurance Costs in Disaster-Prone States
Florida homeowners insurance has become a retirement budget crisis. Average annual premiums in Florida reached $11,000 in coastal counties in 2025, according to the Florida Department of Financial Services. That figure is triple the national average. Retirees who saved $6,000 annually by leaving a high-income-tax state sometimes pay nearly twice that difference in insurance premiums alone.
4. Medicare and Healthcare Out-of-Pocket Costs
No-income-tax states vary widely in healthcare access. Rural Wyoming and South Dakota have fewer Medicare Advantage plan options, which can mean higher out-of-pocket maximums. The Centers for Medicare & Medicaid Services reports that rural areas in these states average fewer than three competing MA plans per county, compared to eight or more in metro Florida and Nevada. Fewer competing plans correlate with higher premiums.
How Social Security Is Taxed in No-Income-Tax States
Read more: Connecticut Retirees in 2026: $994 SSI vs. $1,400+ Rent Gap
All nine states exempt Social Security from state income tax — because they have no state income tax to apply. However, federal taxation of Social Security still applies regardless of your state. Up to 85% of Social Security benefits may be subject to federal income tax if your combined income exceeds $34,000 for single filers or $44,000 for married couples filing jointly, per SSA.gov.
This distinction matters because retirees sometimes confuse state tax exemption with total tax exemption. Moving to Florida does not reduce your federal tax bill on Social Security. A couple receiving $36,000 in combined Social Security benefits plus $30,000 in IRA distributions would still owe federal tax on a portion of those benefits regardless of state residency.
Important Note on “Combined Income”
The IRS defines combined income as: Adjusted Gross Income + Nontaxable Interest + ½ of Social Security Benefits. State of residence does not change this calculation. Source: IRS Publication 915.
Washington’s Capital Gains Tax: The Exception That Changes Everything
Washington state is no longer a clean no-income-tax story for retirees with investment assets. The state’s 7% capital gains excise tax, effective , applies to long-term capital gains above $262,000 (adjusted annually for inflation, reaching approximately <data value
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