Texas does not have a state income tax on wages, salaries, or investment income

Texas is one of nine states with no state income tax. You will not pay state income tax on money you earn from a job, self-employment, dividends, capital gains, or retirement accounts. The state funds itself through sales tax, property tax, and business taxes instead.

This does not mean you owe nothing to the state. Texas has a sales tax (ranging from 6.25% to 8.25% depending on your city and county) and a property tax (which varies widely by county). If you are self-employed, you still owe federal self-employment tax. And you still file federal income tax returns to the IRS.

The absence of state income tax affects how much money stays in your pocket after work, but it does not change what you owe the federal government or how you file federal returns.

Key Takeaways

  • Texas residents pay no state income tax on wages, self-employment income, investment gains, or retirement withdrawals.
  • Texas funds state services through sales tax, property tax, and business taxes, which may be higher than in states with income tax.
  • You still file federal income tax returns with the IRS and pay federal self-employment tax if you are self-employed.
  • Moving to Texas or leaving Texas does not change your federal tax obligations, only your state tax burden.

What you do not pay in Texas

You will not see a line item for Texas state income tax on your pay stub. If you work in Texas, live in Texas, or are self-employed in Texas, the state does not tax your income. This applies to W-2 wages, 1099 self-employment income, Social Security benefits, pension payments, IRA withdrawals, and stock sales.

Some states tax retirement income even if they do not tax wages. Texas does not. If you are retired and living on Social Security, a pension, or IRA withdrawals, you owe no Texas state tax on that money.

What you do pay instead

Texas makes up the lost income tax revenue through other taxes. The most visible is sales tax, which you pay at the register on most purchases. The state rate is 6.25%, but cities and counties add their own, so your total can reach 8.25% or higher. Groceries are exempt; most other goods and services are taxed.

Property tax is the second major source. If you own a home or land in Texas, you pay property tax to your county and school district. Rates vary significantly by location — some counties charge around 0.6% of home value annually, others over 2%. Renters do not pay property tax directly, but landlords pass the cost along in rent.

Businesses in Texas pay a franchise tax (also called the business tax) if they have revenue above a threshold. Self-employed people and small business owners may owe this tax depending on their income and business structure.

How no state income tax affects your federal return

Filing your federal return works the same way whether you live in Texas or a state with income tax. You still report all income to the IRS, claim deductions, and pay federal tax. The IRS does not care that Texas has no state income tax.

If you are self-employed, you still owe federal self-employment tax (Social Security and Medicare tax), which is about 15.3% of your net profit. This is a federal obligation, not a state one. You calculate it on Schedule SE and include it with your federal return.

Some people mistakenly think no state income tax means lower federal tax. It does not. Your federal tax bracket and liability depend on your income and filing status, not on where you live.

Moving to or from Texas and your tax situation

If you move to Texas from another state, you stop owing that state's income tax once you establish Texas residency. Most states consider you a resident once you move there with the intent to stay — you do not need to wait a certain number of days. File a final return with your old state for the year you moved, reporting income only for the months you lived there.

If you move away from Texas, you will owe income tax to your new state starting the day you move, even if you work remotely for a Texas employer. Your new state taxes you based on where you live, not where your employer is located. File a final Texas return (if required) for the partial year you lived there.

Some states tax residents on income earned anywhere in the world, even after they move. Texas does not — once you leave, you owe nothing to Texas on future income.

Remote work and out-of-state employment

If you live in Texas and work remotely for a company in another state, you owe no Texas income tax. Texas does not tax income based on where your employer is; it taxes based on where you live and work. Since you live in Texas, you pay no state income tax.

The reverse is also true: if you live in another state and work remotely for a Texas company, you owe income tax to your home state, not to Texas. Your home state taxes you on income earned while you live there, regardless of your employer's location.

Frequently Asked Questions

Do I have to file a Texas state tax return?

No. Texas has no state income tax and does not require state tax returns. You only file with the IRS. However, if you own property in Texas or have a business there, you may owe property tax or franchise tax, which are handled separately from income tax.

If I move to Texas, do I get a refund from my old state?

No automatic refund. Your old state will tax you only for the months you lived there. If you overpaid through withholding, you can claim a refund on that state's final return. File a part-year return for the months you lived there and report income only for that period.

Does Texas tax retirement income or Social Security?

No. Texas does not tax Social Security benefits, pension payments, IRA withdrawals, or any other retirement income. You owe no state tax on money from retirement accounts, even if you withdraw large amounts in a single year.

Am I still responsible for federal taxes if I live in Texas?

Yes. No state income tax does not affect federal obligations. You file a federal return with the IRS, pay federal income tax based on your income and filing status, and pay federal self-employment tax if you are self-employed. State and federal taxes are separate.

What if I work in one state but live in Texas?

You owe income tax to the state where you work, not to Texas. If you work in Oklahoma and live in Texas, you owe Oklahoma income tax. Texas does not tax you because you do not work there. Your home state (Texas) does not tax you because it has no income tax.