Texas has no state income tax on wages or salaries

Texas does not charge income tax on the money you earn from a job, a business, or most other sources. You will not file a state income tax return, and your employer will not withhold state income tax from your paycheck. This is one of the largest tax differences between Texas and the other 49 states — most states collect income tax, but Texas does not.

You will still owe federal income tax to the IRS, and you will still file a federal return each year if your income is above the threshold. Texas straightforward does not add a second layer on top of that. If you move to Texas from another state, you stop paying that state's income tax once you establish residency here.

This does not mean Texas has no taxes at all. The state funds schools, roads, and services through sales tax, property tax, and business taxes instead. But for wage earners, the absence of income tax is a real financial difference.

Key Takeaways

  • Texas collects no state income tax on wages, salaries, self-employment income, or most other personal income sources.
  • You still owe federal income tax and must file a federal return with the IRS if your income exceeds the threshold.
  • Texas funds state services through sales tax (currently 6.25 percent statewide, plus local additions), property tax, and business taxes instead.
  • If you move to Texas from a state with income tax, you stop paying that state's income tax once you establish Texas residency.
  • Self-employed people in Texas pay federal self-employment tax but no state income tax on their business earnings.

What income sources are not taxed in Texas

Wages and salaries from employment are not taxed. Bonuses, commissions, and tips are not taxed. Self-employment income from a business or freelance work is not taxed at the state level. Rental income, investment income, and capital gains are not taxed by Texas. Retirement distributions from a 401(k) or IRA are not taxed by the state. Social Security benefits are not taxed by Texas.

The only significant exception is that Texas does tax some forms of business income through the franchise tax, which is a separate business-level tax, not a personal income tax. Most wage earners never encounter it.

This broad exemption applies whether you are a Texas resident or a nonresident who earned money in Texas. If you worked in Texas but lived in another state, you would not owe Texas income tax on those wages — though you might owe income tax to your home state.

Federal income tax still applies in Texas

The absence of state income tax does not reduce your federal tax burden. You will owe federal income tax on all taxable income, and you will file Form 1040 with the IRS each year if your income is above the filing threshold. For 2024, that threshold is $14,600 for a single person under 65 and $29,200 for a married couple filing jointly under 65.

Your federal tax rate depends on your income level and filing status, not on where you live. Texas residents pay the same federal rates as residents of California, New York, or any other state. The IRS withholds federal tax from your paycheck based on the W-4 form you complete with your employer.

If you are self-employed, you also owe federal self-employment tax (Social Security and Medicare tax), which is calculated on Schedule SE and added to your federal return. Texas does not reduce or eliminate this obligation.

Sales tax and property tax in Texas instead

Texas makes up the revenue from no income tax through other taxes. The statewide sales tax rate is 6.25 percent, but most Texas cities and counties add local sales tax on top of that, bringing the total to between 8 and 8.25 percent in most populated areas. This applies to most goods and some services — groceries are exempt, but restaurant meals, clothing, and electronics are taxed.

Property tax is the other major source of state and local funding. Texas has no state property tax, but counties and school districts levy property tax on real estate. The effective rate varies widely by location — some counties charge around 0.6 percent of home value per year, while others charge closer to 1.8 percent. This is where Texas residents often pay more than residents of high-income-tax states.

Renters do not pay property tax directly, but landlords pass the cost along through rent. Over time, the combination of sales tax and property tax can exceed what a resident would pay in state income tax in another state, depending on income level and spending habits.

Moving to Texas and changing your tax residency

If you move to Texas from another state, you stop owing that state's income tax once you establish Texas residency. Residency is usually determined by where you live on the last day of the tax year — December 31. You do not need to file paperwork to claim Texas residency; the absence of state income tax means there is no residency registration process.

Your previous state may still tax income you earned there before you moved. If you moved to Texas on June 15, you would owe income tax to your old state on income earned through June 15, then owe nothing to Texas on income earned after that date. You may need to file a part-year resident return in your old state to report this split.

If you worked remotely for an out-of-state employer, your tax situation depends on where you physically worked. If you performed the work in Texas, you owe no Texas income tax. Your employer's state may still try to tax you, but Texas will not.

Self-employed people and business owners in Texas

If you are self-employed or own a business, you owe no Texas income tax on your business earnings. You will still owe federal self-employment tax (15.3 percent combined, split between you and the business) and federal income tax on your net profit. Texas does not reduce either of these obligations.

Texas does charge a franchise tax on some businesses, but this applies only to businesses with more than $1.23 million in revenue (as of 2024). Most small businesses and sole proprietors do not reach this threshold and pay no franchise tax. The franchise tax rate is either 0.375 percent or 0.75 percent of revenue, depending on business structure.

You will file Schedule C (Profit or Loss from Business) with your federal return to report self-employment income. You will not file a corresponding state form in Texas because there is no state income tax to calculate.

Frequently Asked Questions

Do I have to file a Texas state income tax return?

No. Texas does not require state income tax returns because it does not tax personal income. You will file a federal return with the IRS if your income is above the threshold, but you will not file anything with the state of Texas for income tax purposes.

If I work in Texas but live in another state, do I owe Texas income tax?

No. Texas does not tax income earned within the state by nonresidents. You would owe income tax to your home state, but not to Texas. Your employer should not withhold Texas income tax from your paycheck.

Does Texas tax retirement income or Social Security?

No. Texas does not tax distributions from 401(k)s, IRAs, pensions, or Social Security benefits. You will owe federal tax on most retirement income, but the state takes nothing. This is one reason retirees often move to Texas.

What if I move to Texas mid-year?

You owe income tax to your old state only on income earned before you moved. You will likely file a part-year resident return in that state showing income through your move date. Texas will not tax you on any income, regardless of when you moved.

Is the franchise tax the same as income tax?

No. The franchise tax is a separate business-level tax that applies only to businesses with more than $1.23 million in annual revenue. Most wage earners and small business owners never pay it. It is not an income tax and does not explore to personal wages or salaries.