Texas has no state income tax on wages, salaries, or most other personal income
Texas is one of nine states in the United States with no state income tax. That means you do not pay a percentage of your wages 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 tax, property tax, business taxes, and other sources. But for individuals, there is no annual tax on personal income.
Key Takeaways
- Texas residents and workers pay no state income tax on wages, salaries, self-employment income, or most other personal earnings.
- You still owe federal income tax to the U.S. government, and that requirement does not change because you live in Texas.
- Texas funds state services through sales tax (which is relatively high), property tax, and business-related taxes instead.
- If you move to Texas from a state with income tax, you will no longer owe that state income tax once you establish Texas residency.
What income is not taxed in Texas
Texas does not tax wages, salaries, tips, self-employment income, interest, dividends, capital gains, or retirement distributions. If you receive money as a W-2 employee, a 1099 contractor, a business owner, or from investments, Texas does not take a cut.
This applies whether you are a Texas resident or a non-resident who works in the state. If your employer is based in Texas or you run a business there, you still owe no state income tax on that income.
The only exception is that Texas does tax certain types of income under specific circumstances, but these are rare and narrow. For the vast majority of people, all personal income is untaxed at the state level.
Federal income tax still applies
Living in Texas does not exempt you from federal income tax. You must still file a federal return with the IRS and pay federal tax on your income. The absence of a state income tax is separate from your federal obligation.
When you file your federal return, you report the same income whether you live in Texas, California, or any other state. Your federal tax bracket and the amount you owe depend on your income level and filing status, not on where you live.
How Texas funds state government without income tax
Texas relies on sales tax as its primary source of state revenue. The state sales tax rate is 6.25 percent, and local jurisdictions can add up to 2 percent more, bringing the total to as high as 8.25 percent in some areas. This means you pay tax on most purchases of goods and some services.
Property tax is the second major revenue source. Texas has no state income tax, but property owners pay property tax to their county and local school district. These rates vary by location but are often higher than in states with income tax.
The state also collects business taxes, franchise taxes, and taxes on specific items like gasoline and cigarettes. Together, these sources fund the state budget.
What happens if you move to Texas from another state
If you move to Texas from a state with income tax, you will no longer owe that state income tax once you establish Texas residency. Residency is typically determined by where you spend most of your time, where you register your vehicle, and where you maintain a permanent home.
In your first year of moving, you may owe income tax to your previous state for the months you lived there before relocating. You will file a part-year resident return for that state, reporting only the income earned while you were a resident. After that, you owe nothing to that state.
You should update your address with your employer and the IRS so your W-2 or other tax documents reflect your new state of residence.
Non-residents working in Texas
If you live in another state but work in Texas, you do not owe Texas state income tax on your wages. Texas does not tax non-residents on income earned within the state. You will owe income tax to your home state instead, following that state's rules for non-residents who work elsewhere.
Some states tax their residents on all income, regardless of where it is earned. Others tax only income earned within the state. Your home state's rules determine what you owe, not Texas's rules.
Frequently Asked Questions
Do I still have to file a tax return if I live in Texas?
You must file a federal return if your income exceeds the threshold set by the IRS for your filing status. Texas does not require a state return because there is no state income tax. Check the IRS website or speak with a tax professional to determine whether you must file federally.
Does Texas tax retirement income or Social Security?
No. Texas does not tax Social Security benefits, pensions, 401(k) distributions, or IRA withdrawals. These income sources are completely untaxed at the state level, which is one reason many retirees move to Texas.
Are there any deductions or credits I lose by living in Texas?
You do not lose federal deductions or credits by living in Texas. Your federal return works the same way. You may lose state-level deductions or credits that other states offer, but since Texas has no income tax, there are no state deductions to claim.
If Texas has no income tax, why is my property tax so high?
Texas funds schools and local services primarily through property tax rather than income tax. Property tax rates vary by county and school district but are often higher than in states that use income tax. The trade-off is no state income tax in exchange for higher property taxes.
What if I work remotely for a company in another state while living in Texas?
You owe no Texas state income tax on that income. You may owe income tax to the state where your employer is located, depending on that state's rules. Some states tax only income earned within their borders; others tax residents on all income. Check your employer's state rules or consult a tax professional.