Texas does not have a state income tax
Texas is one of nine states with no state income tax on wages, salaries, or other personal income. You will not owe Texas state income tax on money you earn, regardless of how much you make or how long you have lived in the state. This applies to W-2 employees, self-employed people, contractors, and anyone else who receives income.
The absence of state income tax does not mean Texas has no taxes at all. The state funds schools, roads, and services through sales tax, property tax, business taxes, and other revenue sources. But for individuals, the lack of state income tax is a significant difference from most other states.
If you moved to Texas from another state or are considering the move, this is one of the largest tax differences you will encounter. You will still file a federal income tax return with the IRS, but you will have no state return to file with Texas.
Key Takeaways
- Texas residents pay no state income tax on wages, salaries, self-employment income, or investment income.
- You still must file a federal income tax return with the IRS, even though Texas has no state return.
- Texas funds state services through sales tax (which is 6.25% statewide, plus local additions), property tax, and business taxes instead.
- 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 ordinary income from employment, self-employment, rental properties, investments, or retirement accounts. This includes wages from a job, 1099 contractor income, capital gains from selling stocks or real estate, dividends, interest, and distributions from IRAs or 401(k)s. If the income would normally be taxable at the federal level, it is still not taxed by Texas.
The only exception is that Texas does not tax certain types of retirement income in some cases, but this is not because of a special exemption — it is simply because there is no state income tax to begin with. Social Security benefits, for example, are not taxed by Texas (though they may be taxed federally depending on your total income).
Federal taxes still apply in Texas
The absence of state income tax does not reduce your federal tax burden. You will still owe federal income tax to the IRS on all taxable income, and you must file a federal return by April 15 each year (or the next business day if April 15 falls on a weekend). The IRS tax brackets, deductions, and credits are the same for Texas residents as for residents of any other state.
If you are self-employed, you will also owe federal self-employment tax (Social Security and Medicare), which is calculated on your net business income. Texas does not reduce or eliminate this obligation.
Other taxes you will pay in Texas
While Texas has no income tax, residents and businesses pay other taxes that fund state and local services. The statewide sales tax is 6.25%, and most cities and counties add local sales tax on top of that, bringing the total to between 7.25% and 8.25% depending on location. This applies to most purchases of goods and some services.
Property tax in Texas is significant and varies by county and school district. Homeowners pay property tax based on the assessed value of their home, and renters indirectly pay property tax through their rent. Texas has no state property tax cap, so rates differ widely — some counties charge around 0.5% of home value annually, while others charge 1.8% or more.
Businesses in Texas pay a franchise tax (also called the business tax) on revenue or profit, depending on the business structure. This is separate from federal corporate income tax and applies to most for-profit entities operating in the state.
Moving to Texas from another state
If you moved to Texas during the year, you may still owe income tax to your former state for the months you lived there. Most states tax residents on income earned while they were residents, even if the income was paid after they moved. You will need to file a part-year resident return in your former state and a resident return in Texas (though the Texas return will show zero income tax owed).
The timing of your move matters. If you moved on January 15, you owe your former state income tax for January 1 through January 14. If you moved on December 1, you owe Texas nothing (since there is no state income tax) but may owe your former state for January through November.
Some states offer credits for taxes paid to other states, which can reduce your federal tax burden if you paid state income tax to your former state. Check with a tax professional or your former state's tax agency for details on how this applies to your situation.
How Texas funds state services without income tax
Texas generates state revenue through sales tax, property tax, business taxes, and other sources. The sales tax is the primary revenue source for many state services, which is why Texas has a relatively high sales tax compared to states with income tax. Property tax funds local schools and county services, making it a major expense for homeowners.
The state also collects taxes on oil and gas production, which has historically been a significant revenue source. Franchise taxes on businesses and various licensing fees round out the state's revenue. This structure means that Texas residents who own property or make purchases bear a larger share of the tax burden through consumption and property taxes rather than income taxes.
Frequently Asked Questions
Do I still have to file taxes if I live in Texas?
Yes, you must file a federal income tax return with the IRS if your income exceeds the filing threshold for your age and filing status. You will not file a state return with Texas, but the federal return is required. Check the IRS website for current income thresholds based on your situation.
If I work remotely for a company in another state, do I owe that state's income tax?
No. Most states tax income based on where the work is performed or where the employee lives, not where the employer is located. Since you live and work in Texas, you owe no state income tax. Your employer's state has no claim on your income. However, if you worked in another state for part of the year, you may owe that state income tax for that period.
Does Texas tax retirement income or Social Security?
Texas does not tax any form of income, including retirement distributions, pensions, or Social Security. However, Social Security may be taxable at the federal level depending on your total income. Retirement account withdrawals are taxed federally but not by Texas.
What if I own rental property in Texas — do I pay state income tax on the rent?
No. Rental income is not taxed by Texas, though it is taxed federally. You will report the rental income and expenses on your federal return, but you will owe no state income tax on the net rental income.
Will Texas ever implement a state income tax?
Texas has no state income tax by constitutional design. The state constitution would need to be amended to allow an income tax, which requires approval by voters. While this has been proposed occasionally, there is no current movement toward implementing one.