Texas does not charge state income tax on wages, salaries, or most other personal income

Texas is one of nine states with no state income tax. That means the federal government takes income tax from your paycheck, but Texas does not. You will not file a state income tax return, and the state does not withhold money for income tax purposes.

This applies to W-2 wages, self-employment income, investment income, and retirement distributions. The only major exception is that Texas does tax certain types of business income through its franchise tax, which is a separate system that applies to businesses, not individuals.

If you work in Texas or live there, you pay no state income tax regardless of where your employer is located. If you work outside Texas but live there, you also owe no state income tax to Texas on that out-of-state income.

Key Takeaways

  • Texas collects no income tax from individuals on wages, self-employment income, or retirement distributions.
  • You will not file a state income tax return with Texas, and your employer will not withhold state income tax from your paycheck.
  • Federal income tax still applies — the absence of state income tax does not reduce what you owe to the federal government.
  • Texas funds state services through sales tax, property tax, and business taxes instead of income tax.

How Texas replaced income tax revenue

Texas funds schools, roads, and state services without an income tax by relying on other revenue sources. The state has a higher sales tax rate than many states — currently 6.25 percent at the state level, though local taxes can add to that total — and property taxes are a major funding source for schools and local government.

Texas also taxes businesses through the franchise tax, which applies to most businesses with revenue above a certain threshold. This is not an income tax on individuals, but it does generate revenue for the state that other states collect through income tax.

The result is that Texas residents and workers pay no state income tax, but they may pay more in sales tax and property tax than residents of states with income tax. The total tax burden varies depending on your income level, how much you spend, and whether you own property.

What happens if you move to or from Texas

If you move to Texas from another state, you stop owing income tax to your previous state once you establish residency in Texas. Your new employer will not withhold state income tax. You may still owe income tax to your former state for the portion of the year you lived there before moving.

If you move away from Texas to a state with income tax, your new state will begin withholding income tax from your paycheck. You will file a state return in your new state. You do not owe Texas income tax for any year after you leave, even if you still own property there.

The key factor is residency. Most states determine this by where you live on December 31 of the tax year. If you moved mid-year, you typically file a part-year return in both states, reporting only the income earned while you lived in each one.

Self-employment and business income in Texas

If you are self-employed or own a business in Texas, you owe no state income tax on your business income. You still owe federal self-employment tax and federal income tax, but Texas takes nothing.

However, if your business is structured as a corporation or partnership, or if it meets certain revenue thresholds, you may owe the Texas franchise tax. This is a tax on business revenue or profit, not on your personal income. The franchise tax applies to businesses with more than $1.23 million in revenue (as of 2024, though this threshold changes annually).

Sole proprietors with income below the franchise tax threshold owe neither state income tax nor franchise tax. You report your business income on your federal return, but nothing goes to Texas.

Retirement income and investment income

Texas does not tax retirement income, including distributions from 401(k)s, IRAs, pensions, or annuities. You owe federal income tax on most retirement withdrawals, but Texas takes nothing.

Investment income — dividends, capital gains, interest — is also not taxed by Texas. You report this income on your federal return and pay federal tax, but the state does not tax it. This applies whether you live in Texas or are a Texas resident receiving investment income from out-of-state sources.

Social Security benefits are not taxed by Texas either. Some states tax Social Security; Texas does not. If you receive Social Security and live in Texas, you owe no state income tax on those benefits.

How to verify your tax situation

Because Texas has no state income tax, you will not receive a state tax form or instructions from Texas. Your employer sends you a W-2 for federal purposes only. If you are self-employed, you report your income on your federal Schedule C, but you do not file anything with Texas.

If you need to confirm your residency status for tax purposes — for instance, if you split time between Texas and another state — contact the Texas Comptroller of Public Accounts. They can clarify whether you are considered a Texas resident for tax purposes based on where you maintain your primary home and other factors.

For federal tax questions, the IRS website and your federal tax software provide guidance. Many free federal tax preparation services are available to lower-income filers through the IRS Free File program.

Frequently Asked Questions

Do I still pay federal income tax if I live in Texas?

Yes. Texas having no state income tax does not affect federal income tax. Your employer withholds federal income tax from your paycheck, and you file a federal return each year. The absence of state income tax only means you do not owe or file anything with Texas.

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

You owe income tax to the state where you work, not to Texas. Your employer in that state will withhold that state's income tax. You may need to file a return in both states if you lived in Texas for part of the year. Check the other state's tax rules for nonresident workers.

Does Texas tax rental income or property sales?

Texas does not tax rental income or capital gains from property sales as state income tax. You report these on your federal return and pay federal tax. However, you do pay property tax on real estate you own in Texas, which is a separate tax collected locally.

If I inherit money in Texas, do I owe state income tax?

Texas does not have an inheritance tax or estate tax. You owe no state tax on inherited money. The federal government may tax large estates, but that is separate from Texas state tax.

Can I deduct Texas property tax on my federal return?

Yes, but only up to $10,000 per year in total state and local taxes (including property tax, sales tax, and income tax combined). This is a federal deduction, not a Texas one. Consult a tax preparer or the IRS website for details on how to claim this deduction.