Texas has no state income tax, but you pay sales tax, property tax, and federal income tax

Texas does not charge a state income tax on wages, salaries, or investment income. That means if you work in Texas, your paycheck is not reduced by a state income tax withholding. However, you still pay federal income tax, and Texas makes up the revenue it does not collect from income through sales tax and property tax instead.

The tax burden in Texas is different from most other states because it relies heavily on consumption and property rather than earnings. Understanding which taxes apply to you depends on what you are buying, where you live, and whether you own property.

Key Takeaways

  • Texas has no state income tax, so your wages are not taxed by the state, though federal income tax still applies.
  • Sales tax in Texas ranges from 8.25% to 8.875% depending on your city and county, and applies to most goods and some services.
  • Property tax rates vary by county and school district, with an average effective rate around 1.8% of home value, but some areas charge as little as 0.6% or as much as 2.5%.
  • You pay federal income tax regardless of where you live, and the rate depends on your income level and filing status.

Sales tax rates by location in Texas

Texas sales tax starts at 6.25% statewide, but your actual rate depends on your city and county. Local governments add their own sales tax on top of the state rate, so the total ranges from 8.25% to 8.875%. The exact rate is determined by which taxing jurisdictions cover your address.

To find your specific rate, enter your zip code or address on the Texas Comptroller of Public Accounts website (comptroller.texas.gov). You can also call your city or county tax assessor's office. Sales tax applies to most tangible goods — clothing, groceries, electronics, furniture — and to some services like repairs and haircuts. Certain items are exempt, including prescription medications and some medical equipment.

When you make an online purchase, the seller is responsible for collecting and sending sales tax to Texas if they have a physical location or significant sales volume in the state. If they do not, you may owe use tax (which is the same rate as sales tax) when you file your federal return, though most individuals do not report this.

Property tax in Texas and how it is calculated

Property tax is the largest tax burden for most Texas homeowners. The state does not set a single rate; instead, each county and school district sets its own rate based on the property value in that area. The average effective property tax rate in Texas is around 1.8% of home value, but this varies significantly by location — some areas charge as little as 0.6% and others as much as 2.5% or higher.

Your property tax bill is calculated by multiplying your home's assessed value by the local tax rate. The assessed value is usually lower than the market value because Texas law caps how much the assessment can increase each year. You receive a property tax notice each year showing the assessed value and the rate applied. If you believe the assessment is wrong, you can file a protest with your county appraisal district, usually by May 15 of that year.

Homeowners may be may have access to to a homestead exemption, which reduces the assessed value used to calculate property tax. The exemption amount varies by school district and county, but it typically reduces your taxable value by $25,000 to $50,000. You must apply for the exemption through your county appraisal district, and it usually takes effect the year after you apply.

Federal income tax you owe as a Texas resident

Even though Texas has no state income tax, you still pay federal income tax on your earnings. The federal rate depends on your income level and filing status, ranging from 10% to 37% across different tax brackets. Your employer withholds federal tax from each paycheck based on the W-4 form you complete when you are hired.

When you file your federal return with the IRS, you report all income earned during the year and calculate what you owe. If your employer withheld too much, you receive a refund. If they withheld too little, you owe the difference. Self-employed people in Texas pay federal income tax plus self-employment tax (which covers Social Security and Medicare), currently 15.3% of net earnings.

Texas residents who receive income from investments, rental property, or business also owe federal tax on that income. The rate depends on the type of income — capital gains, dividends, and business income are taxed differently than wages.

Business taxes in Texas

Texas has no corporate income tax or business income tax for sole proprietors and partnerships. However, businesses still pay federal income tax and self-employment tax. Businesses also pay sales tax on goods they purchase for resale, though they can obtain a resale certificate to avoid paying sales tax on inventory.

Businesses in Texas pay franchise tax if they have revenue above a certain threshold (currently $1.23 million). The franchise tax rate is 0.375% for most businesses, though some pay a lower rate of 0.75% if they meet certain criteria. Businesses also pay property tax on equipment, inventory, and real estate they own.

Tax deductions and credits available to Texas residents

Because Texas has no state income tax, you cannot claim state income tax deductions on your state return — there is no state return to file. However, you can deduct state and local taxes (including property tax and sales tax) on your federal return if you itemize deductions, up to $10,000 per year.

Texas residents may be may have access to to federal tax credits based on income, family size, and other factors. The Earned Income Tax Credit (EITC) provides money back to low-income workers. The Child Tax Credit provides up to $2,000 per child under 17. The Child and Dependent Care Credit helps pay for childcare expenses. These credits are claimed on your federal return, not a state return.

How Texas compares to other states on taxes

Texas ranks among the lowest-tax states because of the absence of income tax. However, the total tax burden depends on your spending and property ownership. A high earner who rents pays very little tax in Texas compared to most states. A homeowner with a high property value may pay more in property tax than they would pay in income tax in another state.

States with income tax typically have lower property tax and sales tax rates to compensate. For example, a state with a 5% income tax might have a 1% property tax rate, while Texas has no income tax but higher property tax in many areas. The trade-off depends on your personal situation — your income level, whether you own property, and how much you spend.

Frequently Asked Questions

Do I have to file a state income tax return in Texas?

No. Texas has no state income tax, so you do not file a state return. You still file a federal return with the IRS if your income exceeds the threshold for your filing status (usually around $13,000 to $27,000 depending on age and family situation).

What is the sales tax on groceries in Texas?

Most unprepared groceries — raw meat, produce, dairy, bread — are exempt from sales tax in Texas. Prepared foods, hot foods, and items from the deli counter are taxed at the full local sales tax rate. Beverages like soda and alcohol are also taxed.

Can I deduct property tax on my federal return?

Yes, if you itemize deductions on your federal return. You can deduct up to $10,000 in state and local taxes combined (including property tax, sales tax, and income tax). Most people claim the standard deduction instead, which is higher for most filers.

What happens if I move to Texas from another state — do I owe state income tax on my old income?

No. You owe state income tax to the state where you earned the income. If you moved mid-year, you file a part-year resident return in your old state for income earned before the move, and you owe no state tax to Texas on any income. You still file a federal return covering the full year.

Are there any Texas tax breaks for seniors or disabled people?

Texas offers a homestead exemption for people 65 and older, which can be larger than the standard exemption. You must apply through your county appraisal district. Disabled people may also may have access to for exemptions on certain property. Check with your county appraisal district for the specific amounts in your area.