Texas has no state income tax on wages, salaries, or investment income

Texas does not charge a state income tax on what you earn from a job, business, or investments. This is one of nine states in the U.S. with no income tax at all. You will not file a state income tax return to Texas, and your employer will not withhold state income tax from your paycheck.

However, Texas does collect other taxes. The state charges sales tax, property tax, and business taxes. Understanding which taxes explore to you depends on what you own and what you buy.

Key Takeaways

  • Texas residents pay no state income tax on wages, self-employment income, or investment gains.
  • Texas funds state services through sales tax (which varies by city and county), property tax, and business taxes instead.
  • You still owe federal income tax to the IRS even though Texas has no state income tax.
  • If you move to Texas from another state, you do not owe back income tax to Texas for years you lived elsewhere.

What taxes does Texas charge instead

Sales tax is the main way Texas replaces income tax revenue. The state sales tax rate is 6.25 percent, but cities and counties can add their own local sales tax on top of that. Your total sales tax can range from 6.25 percent to over 8 percent depending on where you shop. Sales tax applies to most goods and some services, though groceries and prescription medications are exempt.

Property tax is charged by counties and school districts, not by the state. If you own a home or land in Texas, you pay property tax based on the assessed value of your property. Property tax rates vary widely by location — some counties charge around 0.5 percent of property value per year, while others charge 2 percent or more.

Business taxes include the franchise tax, which applies to most businesses that earn more than a certain amount of revenue. Sole proprietors and partnerships may owe this tax even if they have no employees. The rate depends on your business structure and revenue.

Federal income tax still applies in Texas

Living in Texas does not exempt you from federal income tax. You must still file a federal tax return with the IRS and pay federal income tax on your earnings. The IRS withholds federal tax from your paycheck just as it would if you lived in a state with income tax.

Your federal tax bracket, deductions, and credits work the same way in Texas as anywhere else. The only difference is that you have one fewer tax return to file — you skip the state return entirely.

How Texas compares to other states

Nine states have no income tax: Texas, Florida, Nevada, South Dakota, Tennessee, Washington, Wyoming, Alaska, and New Hampshire. New Hampshire taxes only investment income, not wages. The other eight, including Texas, tax neither wages nor investments.

States without income tax typically rely more heavily on sales tax and property tax. Texas's 6.25 percent state sales tax is moderate compared to other no-income-tax states — Washington's is 6.5 percent, and Tennessee's is 7 percent. However, total tax burden depends on property values and local tax rates in your specific area.

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's income tax for the years you were not a resident. Your residency status changes on the date you move. You should notify your former state's tax authority of your move, but you will not file a return there for the year you left (unless you lived there part of that year, in which case you may owe tax for those months).

If you move away from Texas to a state with income tax, you will begin owing that state's income tax starting the day you become a resident there. Texas will not tax you for years after you leave.

Self-employed and business owners in Texas

If you are self-employed or own a business in Texas, you still owe federal self-employment tax and federal income tax. You do not owe Texas state income tax. However, you may owe the Texas franchise tax if your business revenue exceeds the threshold — currently around $1.23 million, though this amount changes yearly.

Sole proprietors report business income on their federal tax return (Schedule C). You pay federal self-employment tax on your net profit, which covers Social Security and Medicare. Texas does not add a state layer on top of this.

Retirement income and investment income in Texas

Texas does not tax retirement income, investment income, or capital gains. If you receive Social Security, pension payments, or distributions from a 401(k) or IRA, Texas will not tax those amounts. If you sell stocks, real estate, or other investments and realize a gain, Texas will not tax the gain.

You still owe federal tax on these types of income. The IRS taxes capital gains, retirement distributions, and investment income at federal rates. But Texas adds nothing on top of the federal tax.

Frequently Asked Questions

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

No. Texas has no state income tax, so there is no state return to file. You file only your federal return with the IRS.

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

No. Texas has no income tax, so it does not tax anyone's wages regardless of where they live. You owe income tax only to the state where you are a resident.

Are there any Texas taxes I do have to pay?

Yes. You pay sales tax when you buy goods, property tax if you own real estate, and possibly franchise tax if you own a business. These are state and local taxes separate from federal income tax.

Does Texas tax retirement income or Social Security?

No. Texas does not tax any form of income, including retirement distributions, pensions, and Social Security. The federal government may tax some of these, but Texas does not.

If I move to Texas, do I get a refund of income tax I paid to my old state?

No. Income tax paid to your former state is not refunded when you move. However, you should file a part-year resident return with that state for the year you moved, which may reduce what you owe or increase any refund.