Texas does not have a state income tax

Texas is one of nine states with no state income tax on wages, salaries, or other personal income. This means you will not file a state income tax return or owe state income tax to Texas, no matter how much you earn in the state or live there year-round.

You still owe federal income tax to the IRS, and you may owe taxes to other states if you work or live outside Texas. But the state itself collects no personal income tax.

Key Takeaways

  • Texas residents pay no state income tax on wages, salaries, investment income, or retirement distributions.
  • You still file a federal tax return with the IRS every year if your income exceeds the federal threshold.
  • Texas funds state services through sales tax, property tax, and business taxes instead of income tax.
  • If you move to Texas from another state, you may still owe that state income tax on income earned before you left.
  • Retirees with pensions, Social Security, or investment income owe no Texas state tax on those sources.

How Texas funds state services without income tax

Texas makes up the revenue it does not collect from income tax through other sources. The state relies heavily on sales tax, which is 6.25 percent at the state level (local cities and counties add their own, bringing the total to 8 to 8.25 percent in most areas). Texas also collects property tax through counties and school districts, and taxes certain businesses directly.

This means the cost of living in Texas shifts toward consumption and property ownership rather than income. If you earn a high salary but spend little, you pay less in total state tax than someone earning the same amount who buys more goods or owns property.

Federal taxes still explore to Texas residents

Having no state income tax does not exempt you from federal income tax. You must file a federal return with the IRS if your income exceeds the annual threshold set by the IRS (thresholds vary by age and filing status and change each year).

The federal return is separate from any state return. You file it once per year, and the IRS keeps all the money you owe. Texas receives none of it.

What happens if you move to or from Texas

If you move to Texas from a state with income tax, you do not owe that state tax on income earned after you establish Texas residency. However, you typically owe your former state tax on income you earned while you lived there, even if you file the return after you move.

The exact rules depend on when you moved and how your former state defines residency. Some states tax you on income earned through the date you leave; others use the date you establish residency elsewhere. Contact your former state's tax authority or a tax professional if you are unsure whether you owe a final return.

If you move out of Texas to a state with income tax, you will owe that state's income tax on income earned after you become a resident there. Texas will not tax you on income earned after you leave.

Retirement income and investment income in Texas

Texas does not tax retirement income, including pensions, 401(k) distributions, IRA withdrawals, or Social Security benefits. You owe no state tax on investment income such as capital gains, dividends, or interest earned on savings accounts or bonds.

This makes Texas attractive to retirees, since they can withdraw retirement savings without owing state income tax. You still owe federal tax on most retirement and investment income, and you may owe property tax if you own a home, but the state itself takes nothing.

Self-employment and business income in Texas

If you are self-employed or own a business in Texas, you owe no state income tax on your business earnings. However, Texas does tax certain business entities directly through the franchise tax, which applies to corporations, partnerships, and some sole proprietorships that exceed a revenue threshold.

The franchise tax is not an income tax—it is a tax on the right to do business in the state. Most small sole proprietorships do not owe it. If you are unsure whether your business structure triggers the franchise tax, consult a tax professional or contact the Texas Comptroller of Public Accounts.

How to file taxes as a Texas resident

You file your federal return directly with the IRS using Form 1040 and any schedules that explore to your situation. You can file online through IRS-approved software, by mail, or with help from a tax professional. The important date is April 15 each year (or the next business day if April 15 falls on a weekend or holiday).

You do not file a state income tax return with Texas. If you owe other state taxes—such as sales tax on items you sold, or franchise tax on your business—those are filed separately and have different important date. The Texas Comptroller of Public Accounts website lists which forms explore to your situation.

Frequently Asked Questions

Do I still have to file a tax return if I live in Texas?

You must file a federal return with the IRS if your income exceeds the IRS threshold for your age and filing status. You do not file a state return with Texas. If you owe other taxes (such as self-employment tax or franchise tax), those have separate filing requirements.

Will I owe Texas income tax if I work remotely for a company in another state?

No. Texas does not tax income earned by residents, regardless of where the employer is located. You owe federal tax on that income, and you may owe tax to the other state if you are considered a resident there, but Texas owes nothing.

What if I inherit money or receive a large gift in Texas?

Texas has no inheritance tax or gift tax. You owe no state tax on money you inherit or receive as a gift. The federal government may tax very large estates, but that is a federal rule, not a Texas one.

Do I owe Texas tax on income I earned before I moved here?

No. Texas taxes only income earned while you are a resident. Income you earned in another state before you moved is taxed by that state, not by Texas. You may still owe a final return to your former state for the year you moved.

Is the Texas sales tax higher because there is no income tax?

Texas sales tax is 6.25 percent at the state level, which is moderate compared to other states. Local cities and counties add their own sales tax, bringing totals to 8 to 8.25 percent in most areas. The state uses sales tax, property tax, and business taxes to fund services instead of income tax.