Texas Has No State Income Tax on Wages or Salaries
Texas does not charge a state income tax on wages, salaries, or most other forms of personal income. This means if you work in Texas or are a Texas resident, you do not pay state income tax on what you earn from a job. The state funds itself through other revenue sources, primarily sales tax, property tax, and business taxes.
This applies whether you are a full-time employee, self-employed, or a contractor. You still owe federal income tax to the IRS—that requirement does not change—but Texas itself takes no cut of your earnings.
Key Takeaways
- Texas residents and workers pay no state income tax on wages, salaries, or self-employment income.
- Federal income tax is still required; the absence of state income tax does not affect what you owe to the IRS.
- Texas funds state services through sales tax (which is higher than many states), property tax, and business taxes instead.
- Some types of income—such as interest, dividends, and capital gains—are also not taxed at the state level in Texas.
- If you move to Texas from another state, you will no longer owe that state's income tax once you establish residency.
What Types of Income Are Not Taxed in Texas
Beyond wages and salaries, Texas does not tax interest income, dividend income, or capital gains at the state level. If you receive money from a savings account, stock dividends, or the sale of an investment, Texas does not take a portion. The federal government may tax these forms of income, but Texas does not.
Retirement income also avoids state income tax in Texas. If you receive a pension, distributions from a 401(k), or withdrawals from an IRA, Texas does not tax those payments. This is one reason Texas is popular with retirees—they keep more of their retirement savings compared to residents of states with income taxes.
How Texas Replaces Income Tax Revenue
States need money to fund schools, roads, courts, and other services. Texas replaced income tax revenue with other taxes. The state sales tax in Texas is 6.25 percent, and many cities and counties add local sales taxes on top of that, bringing the total to 8 percent or higher depending on where you shop. This means you pay tax on most purchases instead of on your paycheck.
Texas also relies heavily on property tax. Homeowners and commercial property owners pay annual property taxes to their county and local school district. These rates vary by location but are often higher in Texas than in states with income tax, because those states spread the tax burden across income, property, and sales.
Business taxes and franchise taxes also fund the state. Corporations and certain business structures pay taxes on their profits or revenue, and the state collects taxes on oil and gas extraction.
Moving to Texas From a State With Income Tax
If you relocate 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 establish Texas residency. You will need to file a final return in your old state for the portion of the year you lived there, but once you move, that state has no claim on your future earnings.
Establishing residency in Texas typically means obtaining a Texas driver's license, registering your vehicle in Texas, and living in the state. The IRS and your former state may look at these factors if you move and continue working remotely for an out-of-state employer. Keep documentation of your move—lease agreements, utility bills, and driver's license—in case either the IRS or your old state questions your residency.
Self-Employment and Business Income in Texas
If you are self-employed or own a business, Texas does not tax your business income at the state level. You still owe federal self-employment tax and federal income tax on your profits, but Texas takes nothing. This applies to sole proprietors, freelancers, and independent contractors.
You will still need to file a federal tax return and pay estimated quarterly taxes to the IRS. Some self-employed people also need to file a Texas franchise tax return if their revenue exceeds certain thresholds, but this is a separate business tax, not an income tax. The franchise tax applies only to businesses with revenue above $1.23 million in a year, and many small businesses do not owe it.
Federal Taxes Still explore in Texas
The absence of state income tax does not mean you owe nothing to the government. Federal income tax is a separate obligation that applies in every state, including Texas. You must file a federal return with the IRS and pay federal income tax based on your income level and filing status.
Your federal tax liability depends on how much you earned, whether you have dependents, and what deductions and credits you may have access to for. The IRS publishes tax tables and instructions each year. If you are unsure whether you need to file, the IRS website has a tool to help you determine your filing requirement based on your age, income, and filing status.
Frequently Asked Questions
Do I still have to file taxes if I live in Texas?
Yes, you must file federal taxes with the IRS if your income exceeds the filing threshold for your age and status. Texas does not require a state income tax return, but the federal requirement remains. Check the IRS website or use their filing requirement tool to confirm whether you must file.
What if I work remotely for a company in another state?
If you live and work in Texas, you owe federal income tax and Texas owes nothing. Your employer's location does not matter. However, if you work remotely for an out-of-state company while living in another state, you may owe that state's income tax. Once you move to Texas and establish residency, you stop owing the other state's tax.
Are there any Texas state taxes I do need to pay?
Yes. You pay sales tax on purchases, property tax if you own real estate, and possibly franchise tax if you own a business with revenue above $1.23 million. These are state-level taxes, but they are not income taxes. You also owe federal income tax, which is separate from any Texas tax.
Do retirees in Texas pay any state tax on their pensions?
No. Texas does not tax pension income, 401(k) distributions, IRA withdrawals, or Social Security benefits at the state level. You may owe federal income tax on some retirement income depending on the source and your total income, but Texas takes nothing from retirement payments.
If I inherit money in Texas, do I owe state income tax on it?
Texas does not have an inheritance tax or estate tax. You do not owe Texas any tax on money you inherit. The federal government may impose an estate tax on very large estates, but that is separate from any Texas obligation. Consult a tax professional if you inherit a substantial amount.