Texas does not have a state income tax
Texas is one of nine states in the United States with no state income tax on wages, salaries, or other personal income. This means you do not pay a percentage of your earnings to the state government the way residents of most other states do. If you work in Texas or live there, you will not see a state income tax line on your tax return.
This does not mean Texas collects no state revenue. The state funds schools, roads, courts, and other services through sales taxes, property taxes, business taxes, and other sources. But those taxes work differently than income tax, and they affect your household budget in different ways.
Key Takeaways
- Texas has no state income tax on wages, salaries, investment income, or retirement distributions.
- Texas funds state services through sales tax (currently 6.25 percent statewide), property taxes, and business taxes instead.
- You still file a federal income tax return with the IRS even though you owe no state income tax to Texas.
- If you move to Texas from a state with income tax, you will no longer owe that state income tax once you establish residency in Texas.
How Texas funds state government without income tax
Texas relies on sales tax as its largest source of state revenue. The statewide sales tax rate is 6.25 percent, though local cities and counties can add their own sales taxes on top of that. When you buy something in a store or online, a portion of that purchase goes to the state. This affects renters, homeowners, and everyone who spends money equally.
Property tax is the second major revenue source. Texas has no state income tax partly because property owners pay relatively high property taxes to fund schools and local services. If you own a home or land in Texas, you pay property tax to your county and school district based on the assessed value of your property.
Texas also collects business taxes, including the franchise tax (a tax on business revenue), oil and gas taxes, and other levies on corporations and industries. These taxes are built into the prices of goods and services you buy.
What you still owe to the federal government
Having no state income tax does not change your federal tax obligations. You still file a federal income tax return with the Internal Revenue Service (IRS) every year if your income exceeds the filing threshold. The federal government collects income tax from all states, including Texas.
Your federal return covers federal income tax, Social Security tax (if you are employed), and Medicare tax. These are separate from any state income tax. When you receive a W-2 from an employer in Texas, it will show federal tax withheld but no state income tax withheld.
Moving to Texas from a state with income tax
If you relocate to Texas from a state that has income tax, you stop owing that state income tax once you establish Texas residency. Residency is typically determined by where you live for most of the year, where you hold a driver's license, and where you register your vehicle.
The state you are leaving may still try to collect income tax on income you earned while living there. For example, if you worked in California for six months and then moved to Texas, California may claim you owe state income tax on those six months of earnings. You may need to file a part-year resident return in your former state. The rules vary by state, so check with that state's tax authority if you have questions about what you owe for the year you moved.
Self-employment and business income in Texas
If you are self-employed or own a business in Texas, you do not pay state income tax on your business earnings. However, you still owe federal self-employment tax (Social Security and Medicare) and federal income tax on your net business income.
You may owe the Texas franchise tax if your business has revenue above a certain threshold. This is a tax on business revenue, not personal income, and the rules depend on your business structure and how much you earn. A tax professional or the Texas Comptroller of Public Accounts can tell you whether your business owes this tax.
Retirement income and investment income
Texas does not tax retirement income, investment income, or capital gains at the state level. This means distributions from retirement accounts like 401(k)s and IRAs, Social Security benefits, pension payments, and income from stocks or bonds are not subject to Texas state tax.
You will still owe federal income tax on most retirement and investment income. Some types of income—like Social Security benefits—may be partially or fully exempt from federal tax depending on your total income, but that is a federal rule, not a Texas rule. Check with the IRS or a tax professional about your specific situation.
Frequently Asked Questions
Do I have to file a Texas state income tax return?
No. Texas does not have a state income tax, so there is no Texas state income tax return to file. You only file a federal return with the IRS if your income exceeds the federal filing threshold.
If I work remotely for a company in another state, do I owe that state income tax?
Generally, no. Most states tax income based on where you live and work, not where your employer is located. If you live in Texas and work remotely for a company in New York, you owe Texas taxes (sales and property tax) but not New York state income tax. Some states have different rules, so check with the other state's tax authority if you are unsure.
Does Texas have any tax on wages at all?
Texas has no state income tax on wages. You pay federal income tax, Social Security tax, and Medicare tax through payroll withholding. You also pay sales tax when you spend money and property tax if you own real estate, but these are not wage taxes.
Why does Texas not have state income tax?
Texas chose to fund state government through sales tax, property tax, and business taxes instead. This is a policy decision made by the state legislature. Other states without income tax include Florida, Nevada, South Dakota, Tennessee, Washington, Wyoming, and a few others.
If I move out of Texas, do I owe back taxes?
No. You never owed Texas state income tax while you lived there, so there is nothing to owe when you leave. Your new state may require you to file a return if you lived there long enough in the tax year, but that is separate from any Texas obligation.