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 the state does not tax money you earn from a job, self-employment, investments, or retirement accounts. You will not file a state income tax return to Texas, and Texas will not withhold state income tax from your paycheck.
This does not mean Texas has no taxes at all. The state funds schools, roads, and services through other sources: sales tax, property tax, business taxes, and fees. If you live or work in Texas, you still owe federal income tax to the IRS, and you still pay sales tax on most purchases.
The absence of state income tax is permanent under the Texas Constitution. It has been in place since 1902 and cannot be changed without a constitutional amendment.
Key Takeaways
- Texas collects no state income tax on wages, self-employment income, investment gains, or retirement withdrawals.
- You do not file a state income tax return in Texas and your employer does not withhold state income tax from your paycheck.
- Texas funds state services through sales tax (currently 6.25% statewide), property tax, and business taxes instead.
- You still owe federal income tax to the IRS even though Texas has no state income tax.
- Property tax rates in Texas vary by county and school district, and some counties have higher rates than states with income tax.
What you still pay in Texas
Even without state income tax, Texas residents and workers pay several other taxes. Sales tax is the main revenue source for the state. The base state sales tax is 6.25%, but most cities and counties add a local sales tax on top of that, bringing the total to between 8.25% and 8.875% depending on where you shop. This applies to most goods and many services.
Property tax is the second major tax in Texas. If you own a home or land, you pay property tax to your county and school district. The rate varies widely by location — some counties charge around 0.6% of home value per year, while others charge 1.8% or more. Property tax bills in Texas can be substantial even compared to states with income tax.
Texas also collects business taxes, including the franchise tax on corporations and partnerships, and various occupational licenses and fees. Self-employed people and business owners pay federal self-employment tax just like everywhere else.
How federal income tax still applies
The absence of Texas state income tax does not change your federal tax obligations. You must file a federal income tax return with the IRS if your income exceeds the threshold for your filing status. In 2024, that threshold is $14,600 for a single person under 65 and $29,200 for a married couple filing jointly under 65.
Your employer will still withhold federal income tax from your paycheck using a W-4 form. If you are self-employed, you must make quarterly estimated tax payments to the IRS. The IRS tax rates and brackets apply the same way in Texas as they do in every other state.
You may also owe federal taxes on investment income, retirement account withdrawals, capital gains, and other sources. State income tax status does not change any of these federal rules.
Who benefits most from no state income tax
High earners and retirees often benefit most from Texas's lack of state income tax. Someone earning $100,000 per year saves thousands of dollars annually compared to living in a state with a 5% income tax. Retirees who receive substantial pension or investment income see similar savings.
However, the benefit depends on your total tax picture. A homeowner in a high-property-tax county might pay more in property tax than they would pay in state income tax in another state. A family that shops frequently pays more in sales tax. The real comparison requires looking at all taxes together, not just income tax.
Workers earning lower wages may see less benefit from no state income tax, since they owe little or no federal income tax anyway. For them, the sales tax and property tax matter more.
How Texas compares to other no-income-tax states
Eight other states have no state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Washington, and Wyoming. New Hampshire and Tennessee tax only investment income, not wages. Alaska has no sales tax but funds the state through oil revenue and a sovereign wealth fund.
Among the nine states with no wage income tax, Texas has a moderate sales tax rate and property tax rates that vary significantly by location. Some Texas counties have property tax rates lower than the national average, while others are among the highest in the country. The total tax burden depends on where in Texas you live and how much you earn.
What happens if you move to or from Texas
If you move to Texas from a state with income tax, you stop owing that state's income tax once you establish Texas residency. Most states consider you a resident based on where you live on January 1 of the tax year. You will owe income tax to your old state only for the portion of the year you lived there, and you may be able to claim a credit on your federal return for taxes paid to another state.
If you move away from Texas to a state with income tax, you will owe that state's income tax starting the day you move. You do not owe Texas income tax for any year, since Texas has no income tax to owe. However, you may still owe Texas property tax if you own property there, and you may owe Texas sales tax on purchases made in Texas.
Frequently Asked Questions
Do I have to file a state tax return in Texas?
No. Texas has no state income tax, so you do not file a state income tax return. You still file a federal return with the IRS if your income exceeds the threshold for your filing status. Some people file state returns in other states if they lived there during the year or own property there.
Will my employer withhold state income tax from my paycheck?
No. Texas employers do not withhold state income tax because the state does not have one. Your employer will still withhold federal income tax, Social Security tax, and Medicare tax. You may also have voluntary deductions for health insurance, retirement accounts, or other benefits.
Are there any taxes I cannot avoid in Texas?
Yes. You cannot avoid sales tax on most purchases, property tax if you own real estate, and federal income tax if your income exceeds the threshold. You also pay federal payroll taxes (Social Security and Medicare) on wages. These apply to everyone in Texas regardless of income level.
Is Texas income tax really zero, or does it come back another way?
Texas income tax is genuinely zero and has been since 1902. The state funds services through sales tax, property tax, and business taxes instead. Your total tax burden may be higher or lower than in other states depending on your income, spending, and property ownership — but that is a different question from whether state income tax exists.
What if I am retired and living on investment income?
You owe no Texas state tax on investment income, pensions, Social Security, or retirement account withdrawals. You do owe federal income tax on most of these sources. Texas property tax and sales tax still apply if you own property or make purchases in the state.