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

Texas is one of nine states with no state income tax. You do not pay a state income tax on wages, salaries, tips, or most other forms of personal income. This applies whether you work in Texas, live in Texas, or both.

You may still owe federal income tax to the IRS, and you may owe property tax or sales tax to Texas. But the state itself does not collect income tax from individuals.

Key Takeaways

  • Texas collects no state income tax on wages, salaries, self-employment income, or most other personal income sources.
  • You still file federal taxes with the IRS and may owe federal income tax even if you live in Texas.
  • Texas funds state services through sales tax, property tax, and business taxes instead of income tax.
  • 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 Texas does tax instead of income

Texas replaces income tax revenue with other taxes. The state collects sales tax (currently 6.25 percent statewide, plus local additions that vary by county), property tax (paid to counties and school districts, not the state), and business taxes including the franchise tax on corporations and partnerships.

This means your cost of living in Texas includes higher sales tax and property tax than some other states, but no income tax bite from paychecks. The trade-off varies depending on how much you earn, spend, and own property.

Federal income tax still applies to Texas residents

Living in Texas does not exempt you from federal income tax. You file a federal return with the IRS each year if your income exceeds the filing threshold for your age and filing status. The IRS collects federal tax regardless of which state you live in.

Your federal return is separate from any state return. Since Texas has no state income tax, you do not file a state income tax return. You may file a Texas franchise tax return if you own a business, but that is a different form and applies only to certain business structures.

Moving to or from Texas and state income tax

If you moved to Texas from another state during the year, you may owe income tax to your former state for the months you lived there. States tax residents on income earned while they were residents, even if you moved away later in the year. You would file a part-year resident return with that state.

If you moved away from Texas to another state, you owe no Texas income tax for any year. Texas has nothing to collect. You begin owing income tax to your new state starting the month you establish residency there.

Some states also tax people who work within their borders even if they do not live there. Texas does not do this. If you work in Texas but live in another state, you owe income tax only to your home state, not to Texas.

Self-employment and business income in Texas

Texas has no state income tax on self-employment income or business profits. If you are self-employed or own a business, you do not pay state income tax on those earnings.

You still owe federal self-employment tax (Social Security and Medicare) and federal income tax on business profits. You may also owe the Texas franchise tax if your business is structured as a corporation, partnership, or certain other entities. The franchise tax is based on revenue or profit, not income tax, and the rules vary by business type.

Investment income and other sources

Texas does not tax capital gains, dividends, interest income, or rental income at the state level. These are all sources of income that other states might tax, but Texas does not.

You do owe federal tax on investment income and rental income. The IRS taxes capital gains, dividends, and interest at federal rates. If you rent property in Texas, you report rental income and expenses on your federal return.

Frequently Asked Questions

Do I still have to file taxes if I live in Texas?

Yes, you file federal taxes with the IRS if your income exceeds the filing threshold. Texas has no state return to file, but the federal requirement remains. Check the IRS website for current income thresholds based on your age and filing status.

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

You owe income tax to the state where you work, not to Texas. That state taxes you as a nonresident on income earned within its borders. You may need to file a return in both your work state and your home state, though some states offer credits to avoid double taxation.

Does Texas tax retirement income or Social Security?

No. Texas does not tax Social Security benefits, pensions, 401(k) withdrawals, or IRA distributions. You may owe federal tax on these sources, but Texas collects nothing. This is one reason retirees sometimes move to Texas.

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

No. Texas has no inheritance tax or estate tax. The federal government may tax large estates, but Texas does not. Inheritances are not subject to state income tax anywhere in the United States.

What about local income taxes in Texas cities?

Texas cities and counties cannot collect income tax. State law prohibits local income taxes. The only income-like tax some Texas cities have imposed is a limited tax on certain business activities, but this is rare and does not apply to individual wages.