Texas has no state income tax and does not plan to introduce one in 2026
Texas is one of nine states that does not collect income tax on wages, salaries, or other personal income. This has been true since the state's founding and remains the law heading into 2026. There is no pending legislation to change this, and no state income tax will be withheld from your paychecks if you work in Texas.
The state funds its operations through sales tax, property tax, business taxes, and other revenue sources instead. If you move to Texas or start working there, you will not owe state income tax on your earnings, regardless of where you live or whether you are a resident.
Key Takeaways
- Texas has no state income tax on wages, salaries, self-employment income, or investment gains, and this will not change in 2026.
- You will not have state income tax withheld from your paycheck if you work in Texas, even if you live in another state.
- Texas funds state services through sales tax (which is higher than many states), property tax, and business taxes instead.
- If you move to Texas from a state with income tax, you will owe income tax to your former state only on income earned before you left.
- Self-employed people and business owners in Texas still pay federal income tax and self-employment tax, but no state income tax.
Why Texas has no income tax
Texas adopted a constitution in 1876 that prohibited the state from collecting income tax. This restriction has remained in place through every legislative session since then. Changing it would require a constitutional amendment, which needs approval from two-thirds of both the Texas House and Senate, followed by a vote from Texas residents. No such amendment has been seriously proposed in recent decades.
The state deliberately chose to rely on other revenue sources. Texas has a sales tax rate of 6.25 percent at the state level, and local governments can add up to 2 percent more, making combined rates as high as 8.25 percent in some areas. Property taxes in Texas are also significant, as they fund schools and local services. This structure means Texas residents pay tax on purchases and property ownership rather than on income.
What income is not taxed in Texas
Texas does not tax wages, salaries, tips, bonuses, or any other form of earned income. Self-employment income is also not subject to state tax. Investment income—including capital gains, dividends, and interest—is not taxed by the state either. Retirement income, including distributions from 401(k) plans and IRAs, is not taxed by Texas.
This applies to all income earned within the state, regardless of whether you are a Texas resident. If you work remotely for a company in another state but live in Texas, you owe no Texas state income tax on that income. The same is true if you are a business owner or contractor working in Texas.
Federal income tax still applies
Having no state income tax does not mean you avoid federal income tax. Everyone who earns income in the United States must file a federal tax return and pay federal income tax if their income exceeds the threshold set by the IRS. Texas residents are subject to the same federal tax rates and rules as residents of any other state.
If you are self-employed, you also owe self-employment tax to the federal government, which covers Social Security and Medicare. This is separate from income tax and applies whether you live in Texas or any other state. Your employer, if you have one, will still withhold federal income tax from your paycheck.
Moving to Texas from a state with income tax
If you relocate to Texas from a state that collects income tax, you will owe income tax to your former state only on income you earned while living there. Once you establish Texas residency, you stop owing that state's income tax on future earnings. The key is documenting when you moved—your last day of work in the old state, the date you sold your home there, or when you registered your vehicle in Texas.
Some states tax residents on income earned anywhere in the world, even after they move away, if they do not formally establish residency elsewhere. Texas residency is generally established by obtaining a Texas driver's license, registering your vehicle in Texas, and establishing a home address in the state. Keep records of these changes in case your former state questions your move.
How Texas funds state services without income tax
Texas relies on a broader tax base than states with income tax. The state sales tax of 6.25 percent applies to most goods and many services. Local sales taxes add another 0 to 2 percent depending on the county and city. Groceries are taxed at a lower rate (5.5 percent at the state level), and some items like prescription medications are exempt.
Property taxes fund schools, county government, and local services. Texas has no state property tax, but local property tax rates vary widely by county and school district. The state also collects business taxes, including the franchise tax on businesses with revenue above a certain threshold, and taxes on oil and gas production. These sources, combined with federal grants and fees, fund state operations.
Frequently Asked Questions
If I work in Texas but live in another state, do I owe Texas income tax?
No. Texas has no state income tax, so you owe nothing to Texas regardless of where you live. You will owe income tax to the state where you live, if that state collects income tax. Some states tax residents on income earned anywhere, so check your home state's rules.
Do I still have to file a federal tax return if I live in Texas?
Yes. Texas has no state income tax, but you must file a federal return if your income exceeds the IRS threshold for your filing status. The federal threshold changes each year. You can file your federal return without filing a state return because Texas does not have one.
Are there any plans to add state income tax to Texas?
No serious proposals exist to introduce state income tax in Texas. Doing so would require a constitutional amendment approved by voters, which is unlikely given the state's long history without income tax and strong political opposition to it.
What about capital gains tax in Texas?
Texas does not tax capital gains. If you sell stocks, real estate, or other investments at a profit, you owe no Texas state tax on that gain. You will owe federal capital gains tax if the gain is large enough, but Texas itself collects nothing.
Do I need to report Texas income on my federal return?
Yes. All income you earn, including income earned in Texas, must be reported on your federal tax return. The fact that Texas does not tax it does not mean the federal government does not. Report all income sources to the IRS.