Texas has no state income tax on wages, salaries, or most other personal income
Texas does not charge a state income tax on what you earn from a job, a business, or investments. This is one of nine states in the country with no income tax at all. If you live and work in Texas, you will not file a state income tax return or send money to the state based on your earnings.
However, you still owe federal income tax to the U.S. government. Texas residents file the same federal return as everyone else. The state straightforward does not add its own layer on top.
Because Texas has no income tax, the state funds schools, roads, and services through other sources: sales tax, property tax, business taxes, and fees. This means your tax burden in Texas comes from a different mix than it would in a state with income tax.
Key Takeaways
- Texas residents pay no state income tax on wages, salaries, self-employment income, or most investment gains.
- You still file and pay federal income tax, which is the same in Texas as anywhere else in the country.
- Texas funds state services through sales tax (which is higher than average), property tax, and business taxes instead.
- If you move to Texas from another state, you do not owe back income tax to your old state once you establish Texas residency.
What types of income are not taxed in Texas
Wages and salaries from employment are not subject to state tax in Texas. Neither is self-employment income if you run a business. Capital gains from selling stocks or real estate, dividend income, and interest from savings accounts are also not taxed at the state level.
Social Security benefits, retirement distributions from IRAs and 401(k)s, and pension income are similarly free from state income tax. This is one reason Texas is popular with retirees — they keep more of their retirement money than they would in states with income tax.
The one exception is that Texas does tax some business structures differently. Corporations and partnerships may owe the Texas franchise tax (also called the margin tax), which is a small tax on revenue rather than income. Most sole proprietors and small businesses do not owe this tax.
How Texas replaces income tax revenue
Without income tax, Texas relies heavily on sales tax. The state sales tax rate is 6.25 percent, and most counties add a local sales tax on top, bringing the total to 8 or 8.25 percent in many areas. This means you pay tax on nearly everything you buy in a store, at a restaurant, or online.
Property tax is the second major source of state and local revenue. Texas has no state property tax, but counties and school districts set their own rates. Property tax bills in Texas vary widely depending on where you live — some counties charge around 0.6 percent of home value per year, while others charge 1.8 percent or more.
Texas also collects business taxes, franchise taxes on certain corporations, and fees for licenses, permits, and services. The combination of these sources funds state operations, though the mix means lower-income households often pay a higher percentage of their income in taxes than higher-income households do.
Moving to Texas from a state with income tax
If you move to Texas from California, New York, or another state that has income tax, you do not owe that state any additional tax once you establish Texas residency. Your old state will stop taxing your income once you move and update your address with the IRS.
The key is establishing Texas residency. This typically means getting a Texas driver's license, registering your vehicle in Texas, and living in the state for at least 183 days in a calendar year. If you work remotely for a company in another state, your employer may still withhold that state's income tax from your paycheck until you provide proof of Texas residency — usually a new driver's license or lease agreement.
If you own property or a business in your old state, you may still owe taxes to that state on income from that property or business. But wages you earn while living in Texas are taxed only by the federal government.
Federal income tax still applies in Texas
Even though Texas has no state income tax, you must still file a federal income tax return with the IRS and pay federal income tax on your earnings. The federal tax brackets, deductions, and credits are the same whether you live in Texas or any other state.
You will use the same forms — 1040, schedules, and worksheets — that everyone else uses. Your employer will send you a W-2 form showing what you earned and what federal tax was withheld. If you are self-employed, you will file a Schedule C and pay self-employment tax (Social Security and Medicare taxes) in addition to income tax.
The federal government taxes capital gains, dividends, and other investment income the same way it does in every state. Texas's lack of state income tax does not change any federal rules.
Comparing Texas taxes to other states
Texas ranks low in overall state and local tax burden compared to many states, but not the lowest. States like Florida, Nevada, and Wyoming also have no income tax and similar sales and property tax structures. States like California and New York have both income tax and high sales or property taxes, making the total burden much higher.
However, Texas property taxes are higher than average, and the sales tax is above the national median. A person earning $50,000 a year might pay less total tax in Texas than in New York, but more than in a state with low property taxes and moderate income tax. The actual comparison depends on your income level, how much property you own, and how much you spend.
If you are considering moving to Texas for tax reasons, it is worth calculating your specific situation rather than assuming no income tax means the lowest taxes overall.
Self-employed income and Texas taxes
If you are self-employed or run a small business in Texas, you do not pay state income tax on your business earnings. However, you still owe federal self-employment tax (15.3 percent combined for Social Security and Medicare) on net profit, plus federal income tax.
You will file Schedule C with your federal return to report business income and expenses. Texas does not require a separate state business income tax return. Some business structures, like S-corporations or partnerships, may owe the Texas franchise tax if their revenue exceeds a certain threshold, but most sole proprietors do not.
Sales tax is a different matter: if you sell products in Texas, you must collect and remit sales tax to the state, even though you do not pay income tax. This is a separate obligation from income tax and applies regardless of your business structure.
Frequently Asked Questions
Do I still have to file taxes if I live in Texas?
Yes, you must file federal income tax. You do not file a state income tax return because Texas has no income tax. If you are self-employed, you also file Schedule C and pay self-employment tax. The requirement to file depends on your income level and filing status, not on where you live.
What if I work for a company in another state but live in Texas?
You owe federal income tax and Texas owes nothing. Your employer may initially withhold the other state's income tax, but once you provide proof of Texas residency (driver's license, lease, or utility bill), they should stop. Contact your payroll department to update your state of residence.
Is Texas property tax the same as income tax?
No. Property tax is a separate tax based on the value of real estate you own. Texas has no state property tax, but counties and school districts charge local property tax. This is not the same as income tax and applies whether or not you have income.
Do retirees pay any state tax in Texas?
Retirees do not pay state income tax on retirement distributions, Social Security, or pensions. However, they do pay property tax on homes they own and sales tax on purchases. This makes Texas attractive to retirees compared to states that tax retirement income.
What is the Texas franchise tax?
The franchise tax is a small tax on business revenue, not income. It applies to corporations and some partnerships if their revenue exceeds a threshold (around $1.23 million). Most sole proprietors and small businesses do not owe it. It is separate from income tax and is based on how much money your business brings in, not profit.