Texas does not have a state income tax
Texas is one of nine states that does not collect income tax on wages, salaries, or other personal income. You will not file a state income tax return to Texas, and the state does not withhold income tax from your paycheck. This applies whether you work in Texas, live in Texas, or both.
The absence of state income tax does not mean Texas has no taxes. The state funds schools, roads, and services through sales tax, property tax, and business taxes instead. Your federal income tax obligation to the IRS remains unchanged — Texas's lack of state income tax does not affect what you owe the federal government.
Key Takeaways
- Texas collects no income tax on wages, retirement income, investment income, or other personal earnings.
- You do not file a state income tax return in Texas and receive no state tax refund.
- Federal income tax is separate and still required; Texas's state tax policy does not change your federal obligations.
- Texas funds state services through sales tax (currently 6.25 percent statewide), property tax, and business taxes instead of income tax.
- If you moved to Texas from another state, you may still owe income tax to your former state for the portion of the year you lived there.
What income is not taxed in Texas
Texas does not tax wages, salaries, tips, bonuses, or self-employment income. It also does not tax interest, dividends, capital gains, retirement distributions, Social Security benefits, or pension income. If you receive income from any source, Texas will not collect a state tax on it.
This applies to all residents and anyone working in Texas, regardless of immigration status or how long they have lived in the state. A person who works in Texas for one day and leaves owes no Texas state income tax on those earnings.
How Texas funds state services without income tax
Texas relies on sales tax as its largest source of state revenue. The statewide sales tax rate is 6.25 percent, though local cities and counties can add additional sales tax on top of that amount. Combined rates typically range from 8 to 8.25 percent depending on location.
Property tax is the second major revenue source. Texas has no state property tax, but counties and school districts set their own rates. Property owners pay tax to their local jurisdiction, not to the state. Homeowners with a homestead exemption pay a reduced rate on the first portion of their home's value.
Texas also collects business taxes, franchise taxes, and taxes on specific goods like gasoline and cigarettes. These sources, combined with sales and property tax, fund state operations.
Moving to Texas from a state with income tax
If you moved to Texas during the year from a state that collects income tax, you will still owe income tax to your former state for the months you lived there. Most states tax residents on all income earned while they were residents, regardless of where the income was earned.
You will file a part-year resident return with your former state, reporting income only for the period you lived there. Your new state of residence (Texas) will not tax that income. Keep documentation of your move date — a lease, utility bill, or driver's license change — to support your part-year resident status if the state questions it.
Some states have reciprocal agreements with neighboring states that affect tax obligations for people who work across state lines. These are rare and apply only to specific situations, so check with your former state's tax agency if you worked near a border.
Federal taxes still apply in Texas
The absence of Texas state income tax does not reduce your federal income tax obligation. You must file a federal return with the IRS and pay federal income tax on all income, just as residents of every other state do. Federal tax withholding from your paycheck continues as normal.
Some people mistakenly believe that living in a no-income-tax state means they owe no income tax at all. This is incorrect. Federal income tax is a separate obligation that exists regardless of state tax policy. Your employer will still withhold federal tax, and you will still file a federal return each year.
Self-employed and business income in Texas
If you are self-employed or own a business in Texas, you do not pay Texas state income tax on your business income or net profit. However, you still owe federal self-employment tax and federal income tax on that income. You will file Schedule C with your federal return and pay the self-employment tax to the IRS.
Texas does collect a franchise tax on certain businesses, though most sole proprietorships and small businesses are exempt. The franchise tax applies primarily to businesses with revenue above a certain threshold and is separate from income tax. Check with the Texas Comptroller's office if you are unsure whether your business owes franchise tax.
Frequently Asked Questions
Do I still file taxes if I live in Texas?
You do not file a Texas state income tax return. You must still file a federal income tax return with the IRS if your income exceeds the federal filing threshold. The threshold varies by age and filing status but is typically around $14,000 for a single person under 65.
If I work in Texas but live in another state, do I owe Texas tax?
No. Texas does not tax income earned within the state by non-residents. You owe income tax only to your state of residence. Your home state may tax you on all income regardless of where it was earned, so check your state's rules.
Does Texas have any income tax on retirement or Social Security?
No. Texas does not tax retirement distributions, pensions, Social Security benefits, or any other form of income. You owe federal tax on these sources if they exceed federal thresholds, but nothing to Texas.
What if I moved to Texas mid-year and worked in another state first?
You will owe income tax to your former state for the months you lived there, based on income earned during that period. File a part-year resident return with that state. Texas will not tax any of your income. Keep your move documentation to prove when you became a Texas resident.
Are there any hidden Texas taxes I should know about?
Texas has no hidden income tax. You will pay sales tax on purchases (6.25 percent statewide plus local additions), property tax if you own real estate, and federal income tax on all income. Some specific goods like gasoline and cigarettes carry excise taxes, but these are not income-based.