Texas has no state income tax on wages, salaries, or most other personal income

Texas is one of nine states that does not charge a state income tax on what you earn from a job or business. You will not owe Texas state income tax on wages, salaries, tips, self-employment income, or investment gains. If you work in Texas or live there, you do not file a separate state income tax return to the state government.

You still owe federal income tax to the IRS, and you may owe taxes to other states if you work or have income there. But Texas itself collects no income tax from individuals. This is a permanent part of Texas tax law, not a temporary break or exemption.

Key Takeaways

  • Texas does not tax wages, salaries, self-employment income, or investment gains at the state level.
  • You do not file a state income tax return in Texas, though you still file federal taxes with the IRS.
  • Texas funds state services through sales tax, property tax, and business taxes instead of income tax.
  • If you moved to Texas from another state, you may still owe that state income tax on income earned while you lived there.
  • Some types of income—such as certain retirement distributions—may have limited state tax in Texas under specific circumstances.

What Texas taxes instead of income

Because Texas does not collect income tax, the state relies on other sources of revenue. The largest is sales tax, which you pay when you buy goods and services. Texas state sales tax is 6.25 percent, though cities and counties can add local sales tax on top of that, bringing the total to 8.25 percent or higher depending on where you shop.

Texas also taxes property—both real estate and personal property in some cases. Property tax rates vary by county and school district, so what you pay depends on where your home or business is located. The state also collects business taxes, including franchise tax on certain businesses and taxes on oil and gas production.

These taxes replace the income tax that other states collect. Texas residents and workers pay these taxes instead, so the overall tax burden is not necessarily lower—it is just structured differently.

How this affects people who move to or from Texas

If you move to Texas from a state that has income tax, you do not owe that state income tax on income you earn after you move, as long as you establish Texas residency. However, you may owe income tax to your former state on income you earned while you lived there, even if you earned it after you moved away. For example, if you worked in California in January and moved to Texas in February, you owe California income tax on that January income.

If you move away from Texas to a state with income tax, you will owe that state income tax on income you earn there. You will not owe Texas income tax because Texas does not have one. Some states have agreements about how to handle income earned in one state but received in another, so the exact rules depend on which states are involved.

Retirement income and special cases

Texas does not tax most retirement income, including distributions from 401(k) plans, IRAs, or pensions. Social Security benefits are not taxed by Texas. This is one reason Texas is popular with retirees—they can receive retirement income without paying state income tax on it.

There are very few exceptions. Texas does not tax interest or dividends at the state level. Capital gains from selling stocks or property are also not subject to Texas state tax. The only income sources that might face state-level taxation in Texas are those tied to specific business activities or oil and gas interests, and these are handled through business tax structures rather than income tax.

Federal taxes still explore in Texas

The absence of state income tax does not mean you owe no income tax at all. You still file a federal income tax return with the IRS and pay federal income tax based on your income level and filing status. Federal tax rates and rules explore the same way in Texas as they do everywhere else in the United States.

You may also owe self-employment tax if you are self-employed, regardless of where you live. This tax funds Social Security and Medicare and is separate from income tax. The IRS collects it along with federal income tax.

Comparing Texas to other no-income-tax states

Texas is one of nine states with no income tax. The others are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Washington, and Wyoming. New Hampshire and Tennessee tax only dividend and interest income, not wages, so they are sometimes listed separately. All nine states use sales tax, property tax, and business taxes to fund state services instead.

The tax burden in these states is not always lower overall—it depends on how high the sales and property taxes are. Texas has a relatively high sales tax and property tax rates that vary widely by location. Someone who spends a lot of money on goods and services or owns property may pay more total tax in Texas than they would in a state with income tax but lower sales and property taxes.

Understanding your filing obligations in Texas

Because Texas has no state income tax, you do not file a state income tax return. You file only your federal return with the IRS. If you are self-employed, you still file Schedule C with your federal return to report business income and expenses, and you pay self-employment tax.

If you lived in multiple states during the year or moved during the tax year, you may need to file returns in other states. Check the rules for each state where you earned income or lived. The IRS website and your state tax agency websites have worksheets to help you figure out where you need to file.

Frequently Asked Questions

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

No. Texas has no state income tax, so you do not file a state return. You file only your federal return with the IRS. If you lived in another state during the year or earned income there, you may need to file a return in that state.

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

No. Texas does not tax income earned within the state. You owe income tax only to the state where you live. However, some states tax income earned within their borders regardless of where the worker lives, so check the rules for your home state.

Are Social Security and retirement distributions taxed in Texas?

No. Texas does not tax Social Security benefits, 401(k) distributions, IRA withdrawals, pensions, or other retirement income. You may owe federal tax on some retirement income depending on your total income and filing status, but Texas itself does not tax it.

What if I moved to Texas mid-year from a state with income tax?

You owe income tax to your former state only on income you earned while you lived there. Once you move to Texas and establish residency, you owe no Texas state income tax on future income. Your former state may require you to file a part-year return showing income earned only during the months you lived there.

Does Texas tax capital gains or investment income?

No. Texas does not tax capital gains from selling stocks, real estate, or other investments. It also does not tax interest or dividend income. These are not subject to Texas state tax, though they may be subject to federal tax depending on your total income.