Texas has no state income tax on wages or salaries

Texas does not charge state income tax on what you earn from a job, self-employment, or most other sources of personal income. This is one of nine states in the country with no income tax at all. You will still owe federal income tax to the IRS, and you may owe taxes to other states if you work or receive income there, but Texas itself does not take a cut of your paycheck.

This does not mean Texas has no taxes. The state funds schools, roads, and services through sales tax, property tax, business taxes, and other revenue sources. But for most people living and working in Texas, there is no state income tax form to file and no state income tax withheld from paychecks.

Key Takeaways

  • Texas collects no state income tax on wages, salaries, or most personal income, and residents do not file a state income tax return.
  • You still owe federal income tax to the IRS even though Texas has no state tax.
  • Texas funds state services through sales tax (currently 6.25 percent statewide), property tax, and business taxes instead.
  • If you work in another state or receive income from another state, you may owe that state's income tax even if you live in Texas.

What income sources are not taxed in Texas

Texas does not tax wages from employment, self-employment income, investment income, retirement distributions, or Social Security benefits. If you receive a W-2 from an employer, a 1099 from a client, dividends from stocks, or a pension check, Texas does not take a percentage of it. This applies whether you are a resident, work in the state, or both.

The only exception is that some types of business income may be subject to the Texas Franchise Tax, which is a tax on business revenue rather than personal income. This is a separate tax that applies to certain businesses and is not the same as personal income tax.

How federal income tax still applies in Texas

Even though Texas has no state income tax, you must still file a federal income tax return with the IRS if your income exceeds the threshold set by the federal government. For 2024, that threshold is $14,600 for a single person and $29,200 for a married couple filing jointly, though the exact amount changes each year. Your employer will withhold federal tax from your paycheck, and you report that to the IRS, not to Texas.

The federal tax you owe is separate from any state tax. Texas does not collect it, does not see it, and does not reduce it. You calculate federal tax based on federal tax brackets and federal deductions, and you send that money to the IRS.

What happens if you work in another state

If you live in Texas but work in a state that has income tax, you may owe that state's income tax on the wages you earn there. For example, if you live in Texas and work in Oklahoma, you would owe Oklahoma income tax on your Oklahoma wages. Your employer in that state will usually withhold the tax from your paycheck.

Some states have reciprocal agreements that prevent you from owing tax in both places, but you will need to file a return in the state where you worked to claim the exemption. Check with the tax authority in the state where you work to understand your obligations. Texas itself will not tax that income, but the other state will.

Texas sales tax and property tax instead

Texas funds state and local services primarily through sales tax and property tax. The statewide sales tax rate is 6.25 percent, though individual cities and counties can add local sales tax on top of that, bringing the total to as high as 8.25 percent or more depending on where you shop. You pay sales tax when you buy most goods and some services.

Property tax in Texas is set by individual counties and school districts, not by the state. If you own a home or land in Texas, you will receive a property tax bill from your local taxing units. Property tax rates vary widely by location. These two taxes are how Texas replaces the revenue it would collect through state income tax.

Retirement income and Social Security in Texas

Texas does not tax retirement income, including distributions from 401(k)s, IRAs, pensions, or annuities. If you are retired and drawing from a retirement account, Texas takes nothing. Social Security benefits are also not taxed by Texas, though they may be taxed by the federal government depending on your total income.

This is one reason some people move to Texas after retirement. The combination of no state income tax and no tax on retirement income means retirees keep more of what they have saved. You will still owe federal income tax on some retirement income, but Texas adds nothing on top of that.

Frequently Asked Questions

Do I have to file a Texas state income tax return?

No. Texas does not require state income tax returns because there is no state income tax. You will file a federal return with the IRS if your income is above the federal threshold, but you will not file anything with Texas.

If I move to Texas from another state, do I owe back taxes?

No. Once you establish residency in Texas, you owe Texas income tax on income earned after you move — which is zero, since Texas has no income tax. You may owe the previous state income tax on income earned while you lived there, but that is between you and that state.

Does Texas tax investment income or capital gains?

No. Texas does not tax investment income, capital gains, dividends, or interest income. If you sell stock at a profit or receive dividend payments, Texas does not take a share. The federal government may tax some of this income, but Texas does not.

What if I am self-employed in Texas?

You do not owe Texas state income tax on self-employment income. You will owe federal self-employment tax to the IRS, which covers Social Security and Medicare, and you will owe federal income tax on your net profit. But Texas takes nothing from self-employment earnings.

Can I deduct Texas property tax on my federal return?

Yes, but only up to $10,000 per year as part of the state and local tax (SALT) deduction on your federal return. This is a federal deduction, not a Texas deduction. You claim it on your federal tax return, not on a Texas return, because Texas does not have one.