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

Texas is one of nine states with no personal income tax. You will not owe state income tax on money you earn from a job, self-employment, interest, dividends, or capital gains. If you live and work in Texas, you do not file a state income tax return to the Texas Comptroller of Public Accounts.

This does not mean Texas collects no state revenue. The state funds schools, highways, and services through sales tax, property tax, business taxes, and other sources. But individuals do not pay a percentage of their income to the state the way residents of most other states do.

If you moved to Texas from another state or work across state lines, the rules depend on where you earned the money and where you live now. A few specific types of income — mainly retirement pensions in certain circumstances — may still be taxed by Texas, though this is rare.

Key Takeaways

  • Texas residents pay no state income tax on wages, self-employment income, interest, or capital gains.
  • You do not file a state income tax return in Texas, though you still file a federal return if required by the IRS.
  • Texas funds state services through sales tax (currently 6.25 percent statewide, plus local additions), property tax, and business taxes instead.
  • If you worked in another state before moving to Texas, you may owe that state income tax on the income you earned there, even if you now live in Texas.
  • Some retirement income may be subject to Texas tax under specific conditions, but this applies to very few people.

How Texas funds state government without income tax

Texas relies on a broader tax base than states with income tax. The state collects a sales tax of 6.25 percent on most goods and services, and cities and counties add their own local sales taxes on top of that — bringing the total to between 8.25 and 8.875 percent depending on location. Every purchase you make in Texas contributes to state revenue.

Property tax is the second major source. Texas has no state property tax, but counties and school districts set their own rates. Property owners pay these local taxes directly to their county or school district, not to the state. Rates vary widely by county — some are around 0.6 percent of home value annually, others closer to 2 percent.

Texas also taxes businesses through the franchise tax (a tax on business revenue) and collects taxes on oil and gas production, which is significant in Texas. The state also receives federal funding for highways, education, and other programs.

What you still owe the federal government

Having no state income tax does not change your federal tax obligations. If you are required to file a federal return by the IRS — usually because your income exceeds a certain threshold — you must still file Form 1040 with the IRS and pay federal income tax.

The federal income tax rates and rules are the same whether you live in Texas or any other state. Your federal return goes to the IRS, not to Texas. You will receive a W-2 from your employer or file a Schedule C if you are self-employed, just as workers in other states do.

If you have questions about whether you must file federally, the IRS website lists income thresholds by age and filing status, or you can contact a tax professional.

If you worked in another state before moving to Texas

Income you earned in another state while you lived there may still be subject to that state's income tax, even though you now live in Texas. Your obligation to pay another state's income tax is based on where you earned the money and where you lived when you earned it, not where you live now.

For example, if you worked in California for part of the year and earned $30,000 there, then moved to Texas and earned $20,000 in Texas, you would owe California income tax on the $30,000 but no Texas income tax on either amount. You would file a California return for the income earned in California and a federal return for all income.

Some states offer credits to prevent double taxation if you paid tax to another state. Check the tax rules of the state where you worked to see whether you owe them anything and whether you can claim a credit on your federal return.

Remote work and working across state lines

If you live in Texas but work remotely for a company in another state, you generally owe no state income tax — you pay Texas's sales and property taxes instead. 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 in Texas and perform the work in Texas, Texas's no-income-tax rule applies.

The exception is if you travel to the other state regularly to work in person. Some states tax nonresidents who work within their borders for a certain number of days per year. If you commute to another state for work, research that state's rules or speak with a tax professional, because you may owe that state income tax on the days you worked there.

If you are self-employed and serve clients in multiple states, you may owe income tax to states where you have significant business activity or clients, depending on that state's rules. This is complex and varies by state — consulting a tax professional is worth the cost if you operate across state lines.

Retirement income and the rare exceptions

Most retirement income is not taxed by Texas. Social Security benefits, distributions from traditional or Roth IRAs, and 401(k) withdrawals are not subject to Texas state income tax. Military pensions are also exempt from Texas income tax.

There is one narrow exception: some types of retirement income from certain public pension systems may be taxed by Texas under specific conditions. This applies mainly to people who retired from certain government or railroad jobs and receive a pension based on work performed outside Texas. This is uncommon and affects very few people. If you receive a government or railroad pension, contact the Texas Comptroller's office or a tax professional to confirm whether it is taxable in Texas.

Frequently Asked Questions

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

You do not file a state return in Texas. You must file a federal return if your income exceeds the IRS threshold for your age and filing status. Check the IRS website or speak with a tax professional to confirm whether you are required to file federally.

Does Texas tax Social Security or retirement withdrawals?

No. Social Security, IRA distributions, 401(k) withdrawals, and most military pensions are not taxed by Texas. A very small number of public pensions may be taxed under specific circumstances, but this is rare.

If I move to Texas from another state, do I owe that state income tax?

You owe income tax to the state where you earned the money and lived when you earned it. If you worked in another state before moving to Texas, you file a return in that state for the income you earned there. Once you move to Texas and earn income there, you owe no state income tax on that new income.

What if I work remotely for a company in California but live in Texas?

You owe no state income tax to California or Texas. You pay Texas sales tax and property tax instead. Most states tax based on where work is performed or where the employee lives. Since you live and work in Texas, Texas's no-income-tax rule applies.

Does Texas have any income tax at all?

Texas has no personal income tax on wages, self-employment, interest, dividends, or capital gains. The state funds itself through sales tax, property tax, business taxes, and oil and gas taxes instead.