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. This means you will not owe Texas state income tax on money you earn from a job, self-employment, investments, or retirement accounts — regardless of how much you make or how long you have lived in the state.

The state funds itself through other taxes instead: sales tax, property tax, business taxes, and excise taxes on items like gasoline and cigarettes. Because of this structure, Texas residents typically pay no state income tax return to the state, though you may still owe federal income tax to the IRS.

This applies to everyone who lives in Texas or earns income in Texas, whether you are a citizen, permanent resident, or temporary resident. The rule has been in place since Texas became a state and has not changed.

Key Takeaways

  • You will not owe Texas state income tax on wages, self-employment income, investment income, or retirement withdrawals.
  • You still owe federal income tax to the IRS — Texas having no state tax does not affect what you owe the federal government.
  • Texas funds state services through sales tax, property tax, and business taxes instead of income tax.
  • You do not file a state income tax return with Texas, though you must still file a federal return if your income exceeds the IRS threshold.

Federal income tax still applies to Texas residents

Having no state income tax does not mean you owe nothing to the government. The federal government collects income tax from all Americans, including those in Texas. Your federal tax obligation is the same whether you live in Texas, California, or any other state.

You must file a federal tax return with the IRS if your income exceeds the threshold for your filing status. For 2024, that threshold is $14,600 for a single person under 65, $29,200 for a married couple filing jointly, and lower amounts for dependents. These thresholds change each year.

When you file your federal return, you report all income from all sources — wages, self-employment, investments, rental property, and retirement accounts. The IRS uses this information to calculate what you owe or what refund you are due. This process is the same for Texas residents as for residents of any other state.

What taxes Texas residents do pay

Although Texas has no income tax, residents pay other state and local taxes that fund schools, roads, police, and other services. The most visible is sales tax, which you pay when you buy goods or services. The state sales tax rate is 6.25 percent, but cities and counties can add local sales taxes, so the total rate varies by location — typically between 8 and 8.25 percent in most areas.

Property tax is another major source of state and local revenue. If you own a home or land in Texas, you pay property tax to your county and school district based on the assessed value of the property. Property tax rates vary widely by county but average around 0.8 to 1.2 percent of the home's value per year.

Texas also collects business taxes, franchise taxes on certain businesses, and excise taxes on gasoline, cigarettes, and alcohol. Renters do not pay property tax directly, but landlords pass some of that cost along through rent.

How no income tax affects your finances

The absence of state income tax means more of your paycheck stays in your pocket compared to residents of states with income tax. A person earning $50,000 per year in Texas keeps that full amount (before federal taxes), whereas the same person in a state with a 5 percent income tax would owe $2,500 to the state.

However, this does not necessarily mean Texas residents pay less overall. Because Texas relies on sales tax and property tax instead, residents who own homes or spend heavily on goods may pay more in total taxes than they would in a state with income tax. The actual burden depends on your personal situation — how much you earn, whether you own property, and how much you spend.

If you are moving to Texas from another state, you will 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, though the exact rules vary. You should report your move to your previous state's tax authority to avoid filing in both places.

Self-employed and business owners in Texas

If you are self-employed or own a business in Texas, you still do not owe Texas state income tax on your business income. However, you do owe federal self-employment tax and federal income tax on your profits.

Self-employed people must pay self-employment tax to the federal government, which covers Social Security and Medicare. This is separate from income tax and is owed regardless of which state you live in. The rate is 15.3 percent on 92.35 percent of your net business income (as of 2024), though you can deduct half of it from your income tax.

You may also owe Texas franchise tax if your business meets certain thresholds. This is a tax on business revenue, not income, and applies to most businesses with more than $1.23 million in annual revenue (the threshold changes yearly). Sole proprietors and some other business structures may be exempt. You should check with the Texas Comptroller of Public Accounts or a tax professional to determine whether your business owes franchise tax.

Moving to or from Texas and tax residency

If you move to Texas from a state with income tax, you will no longer owe that state's income tax once you become a Texas resident. Most states define residency based on where you live and where you intend to stay, not on how long you have been there. You should notify your previous state's tax authority of your move and file a part-year resident return for the year you moved if you lived there for part of the year.

If you move away from Texas to a state with income tax, you will owe that state's income tax starting the year you become a resident there. You may also owe Texas income tax for the part of the year you lived in Texas if you were self-employed or had other business income — though this depends on the specific circumstances and the other state's rules.

If you work remotely for a company in another state but live in Texas, you generally owe Texas taxes (none) and federal taxes, not the other state's income tax. However, some states tax income earned by their residents even if the work is done elsewhere. You should verify the rules for both your home state and your employer's state if this situation applies to you.

Frequently Asked Questions

Do I still have to file a tax return if I live in Texas?

You do not file a Texas state return, but you must file a federal return with the IRS if your income exceeds the threshold for your filing status. That threshold varies by age and filing status but is typically around $14,600 for a single person. Even if you do not owe federal tax, filing may be worth it to claim refundable credits like the Earned Income Tax Credit.

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

You generally owe income tax to the state where you work, not where you live. However, if you work remotely and your employer is in another state, most states do not tax that income. Some states have reciprocal agreements that prevent double taxation. Check with both your home state and your employer's state to be sure.

Does Texas have sales tax on groceries?

Texas does not tax unprepared food like raw vegetables, meat, and dairy. However, prepared foods, restaurant meals, and some other items are subject to sales tax. The state sales tax on taxable items is 6.25 percent, plus any local sales taxes your city or county adds.

Can I deduct property tax on my federal return?

You can deduct up to $10,000 in state and local taxes (SALT) combined on your federal return if you itemize deductions. This includes property tax, sales tax, and state income tax. Most people use the standard deduction instead, which is higher for most filers, so check which option saves you more money.

What happens to my taxes if I retire in Texas?

You will not owe Texas state income tax on retirement income, including Social Security, pensions, and withdrawals from retirement accounts like 401(k)s and IRAs. You will still owe federal income tax on most retirement income, though Social Security may be partially exempt depending on your total income. Texas's lack of state income tax makes it attractive for retirees.