Texas has no state income tax on wages, salaries, or most other personal income
Texas is one of nine states that does not collect income tax from residents on wages or salaries. This means if you work in Texas or are a Texas resident, you do not pay a state income tax on what you earn from a job. The state funds its operations through other taxes instead, mainly sales tax, property tax, and business taxes.
This applies to W-2 employees, self-employed workers, and contractors. Whether you live in Texas full-time or part-time, and whether you work for a Texas employer or a company based elsewhere, you owe no Texas state income tax on your wages.
Key Takeaways
- Texas residents pay no state income tax on wages, salaries, self-employment income, or most other personal income sources.
- Texas funds state operations through sales tax (currently 6.25 percent statewide), property tax, and business taxes instead of income tax.
- If you move to Texas from a state with income tax, you will no longer owe that state's income tax once you establish Texas residency.
- Some types of income—such as interest, dividends, and capital gains—are also not taxed by Texas, though federal income tax still applies to all of these.
What Texas taxes instead of income
Without an income tax, Texas relies on other revenue sources. The state sales tax is 6.25 percent, and local jurisdictions can add up to 2 percent more, making the total sales tax in some areas as high as 8.25 percent. This means you pay tax on most goods and services you buy, not on the money you earn.
Property tax is also significant in Texas. Homeowners and renters (through their landlord's costs) pay property tax to their county and local school district. Texas has no state property tax, but local rates vary widely by county. Business owners pay franchise tax and sales tax on goods they sell.
Because Texas has no income tax, the state does not file income tax returns or maintain an income tax department. The Texas Comptroller of Public Accounts handles sales tax and other business taxes, but there is no equivalent to a state income tax agency.
Moving to Texas from another state
If you move to Texas from a state that has income tax—such as California, New York, or Illinois—you will stop owing that state's income tax once you become a Texas resident. Residency is generally established when you move your primary home to Texas, register your vehicle there, and update your address with your employer.
You may still owe income tax to your former state for the portion of the year you lived there before moving. For example, if you moved from California to Texas in July, you would owe California income tax for January through June. You would file a part-year resident return with that state for those months.
Federal income tax applies no matter where you live in the United States, so moving to Texas does not reduce your federal tax burden. You will still file a federal return and pay federal income tax on all your income.
Types of income not taxed by Texas
Beyond wages and salaries, Texas does not tax interest income, dividend income, or capital gains. If you earn money from a savings account, stock dividends, or selling an investment property, Texas imposes no state tax on that income. This applies to long-term capital gains and short-term gains alike.
Retirement income is also not taxed by Texas. Social Security benefits, pension payments, and distributions from retirement accounts like 401(k)s and IRAs are free from Texas state tax. This is one reason some retirees choose to move to Texas.
However, federal income tax still applies to all of these income types. The absence of Texas state tax does not mean these earnings are tax-free overall—you will still owe federal tax on interest, dividends, capital gains, and retirement withdrawals.
How Texas compares to other states
Nine states currently have no income tax: Texas, Alaska, Florida, Nevada, South Dakota, Tennessee, Washington, Wyoming, and New Hampshire. New Hampshire taxes only interest and dividend income, not wages, so it is sometimes grouped separately.
States without income tax tend to rely more heavily on sales tax and property tax. This means the overall tax burden varies by how much you spend and own property, not by how much you earn. A high earner in Texas may pay less total state tax than in a high-income-tax state, but a person who spends heavily on goods and services may pay more in sales tax.
The trade-off is that states without income tax often have higher sales taxes or property taxes to fund schools, roads, and public services. Texas's 6.25 percent state sales tax is moderate compared to other no-income-tax states, some of which exceed 7 percent.
Self-employed workers and business owners
If you are self-employed or own a business in Texas, you do not pay Texas state income tax on your business income. However, you still owe federal self-employment tax and federal income tax on your net business earnings.
Texas business owners do pay franchise tax if their business earns more than a certain threshold. The franchise tax is not an income tax but a tax on the privilege of doing business in the state. The rate and threshold depend on the type of business and its revenue.
You will also collect and remit sales tax on goods or services you sell, unless you are in a service-only business that is exempt. Keeping records of your business income and expenses is still important for federal tax purposes, even though Texas does not tax that income.
Frequently Asked Questions
Do I have to file a state income tax return in Texas?
No. Texas has no state income tax, so there is no state income tax return to file. You will still file a federal return if your income exceeds the federal threshold, but Texas does not require a state return.
If I work remotely for a company in another state, do I owe that state's income tax?
Not if you are a Texas resident. Your state of residency determines which state income tax you owe, not where your employer is located. Once you establish residency in Texas, you owe Texas income tax (which is zero) rather than your former state's tax. Your employer may need to update your withholding.
Are there any types of income that Texas does tax?
No. Texas does not tax any form of personal income—wages, self-employment, interest, dividends, capital gains, or retirement income. The state has no income tax at all.
Do I still have to pay federal income tax if I live in Texas?
Yes. Every state resident must pay federal income tax on income that exceeds the federal threshold. Living in Texas eliminates only the state income tax, not the federal tax.
What if I lived in Texas for part of the year and another state for part of the year?
You will owe income tax to the state where you were a resident for each portion of the year. If you moved from Texas to another state in September, you would owe no Texas income tax (because Texas has none), but you would owe the other state's income tax for September through December. File a part-year resident return with that state.