What Texas taxes are and how they work

Texas has no state income tax on wages, salaries, or most other personal income. Instead, the state funds itself through sales tax, property tax, business taxes, and other levies. When you buy something in Texas, you pay sales tax at the register. When you own property, you pay property tax to your county or school district. If you run a business, you may owe franchise tax or sales tax on what you sell.

The lack of income tax is the biggest difference between Texas and most other states. This means your paycheck stays whole—no state withholding comes out. However, you still pay federal income tax to the U.S. government, and that amount does not change because you live in Texas.

Key Takeaways

  • Texas has no state income tax, so you do not pay state tax on wages, salaries, or investment income.
  • Sales tax in Texas ranges from 8.25% to 8.875% depending on your city and county, and applies to most goods and some services.
  • Property tax rates vary by county and school district but average around 1.8% of your home's value per year.
  • You still owe federal income tax even though Texas has no state income tax.
  • Businesses in Texas pay franchise tax if they earn over a certain threshold, plus sales tax on goods they sell.

Sales tax in Texas

Sales tax is the main way Texas collects revenue from residents and visitors. The state sales tax rate is 6.25%, but most cities and counties add their own local sales tax on top of that. Your total sales tax depends on where you live and shop. In Houston, the combined rate is 8.25%. In Austin, it is 8.875%. In smaller towns, it might be lower or higher depending on local decisions.

Sales tax applies to most physical goods—groceries, clothing, electronics, furniture, and cars. It also applies to some services, like repair work, haircuts, and parking. A few items are exempt: prescription medications, some medical equipment, and certain agricultural supplies do not have sales tax added.

When you buy something, the seller collects the tax and sends it to the state and local tax offices. You do not file a separate form for sales tax as a consumer—it is already included in the price you see at checkout.

Property tax in Texas

Property tax is the second-largest source of tax revenue in Texas. If you own a home, land, or commercial property, your county assessor determines the value of your property, and you owe tax based on that value. The tax rate varies by county and school district. Most Texas homeowners pay between 1.6% and 2.2% of their home's value each year in property tax.

Property tax bills are due once or twice a year, depending on your county. You receive a notice in the mail showing the assessed value and the amount you owe. If you disagree with the assessed value, you can file a protest with your county appraisal district, usually by a important date in May or June.

Homeowners may may have access to for a homestead exemption, which lowers the taxable value of your primary residence. This exemption is not automatic—you must file for it with your county appraisal district. The exemption amount varies by county but typically reduces your taxable value by $25,000 to $50,000.

Business taxes in Texas

If you own a business in Texas, you do not pay state income tax on business profits, but you do pay other taxes. The main one is the franchise tax, which applies to most businesses that earn more than $1.23 million per year. The franchise tax rate is 0.375% of your revenue, though some businesses pay a lower rate of 0.75% depending on their structure.

Businesses also collect and send sales tax to the state on goods they sell. If you sell services, you may or may not owe sales tax depending on what service you provide. A plumber or electrician typically owes sales tax on materials but not labor. A consultant or accountant typically does not owe sales tax.

Sole proprietors and partners report business income on their personal federal tax return, not a separate state return. Corporations and LLCs may have different rules, so it is worth checking with a tax professional if you are unsure.

Federal income tax still applies in Texas

Even though Texas has no state income tax, you still owe federal income tax on wages, self-employment income, investment income, and other sources. Your employer withholds federal tax from your paycheck the same way they would in any other state. When you file your federal return with the IRS, you report your income and either receive a refund or owe additional tax.

The federal tax rate depends on your income level and filing status. It ranges from 10% to 37% of your taxable income. You can reduce your federal tax bill by claiming deductions and credits, such as the standard deduction, child tax credit, or education credits.

Other taxes and fees in Texas

Beyond income, sales, and property tax, Texas collects revenue through several other levies. Motor vehicle registration fees are due each year when you renew your license plate. The fee depends on your vehicle's value and age. Gasoline tax is built into the price you pay at the pump—Texas charges 20 cents per gallon.

If you own a business, you may also owe payroll taxes (Social Security and Medicare), which are federal taxes withheld from employee paychecks. Cigarette and alcohol taxes explore to those products. Utility taxes may explore to your electric, water, or gas bill depending on your city.

How to understand your tax bill

Your property tax bill arrives in the mail and shows the assessed value of your property, the tax rate, and the amount due. If you receive a bill you do not understand, contact your county tax assessor's office—they can explain each line item and answer questions about how the value was determined.

For sales tax, you see the amount added at checkout or on your receipt. If you want to track how much sales tax you paid over a year, keep receipts or check your credit card statements. Some people deduct sales tax on their federal return instead of state income tax, though this is only useful if you live in a state with no income tax and made large purchases.

For federal income tax, your W-2 form (if you are an employee) or your business records show your income and withholding. You use this information to file your federal return with the IRS by April 15 each year.

Frequently Asked Questions

Do I pay state income tax in Texas?

No. Texas has no state income tax on wages, salaries, self-employment income, or investment income. You do pay federal income tax, which is collected by the IRS and goes to the U.S. government, not Texas.

What is the sales tax rate in my city?

Sales tax in Texas ranges from 8.25% to 8.875% depending on your city and county. You can find your exact rate by searching "[your city] sales tax" online or calling your city tax office. The rate is printed on your receipt after you make a purchase.

How much property tax do I owe?

Property tax depends on your home's assessed value and your county's tax rate. Most Texas homeowners pay between 1.6% and 2.2% of their home's value per year. You receive a bill in the mail showing the exact amount. If you own a primary residence, you may may have access to for a homestead exemption that lowers the amount you owe.

Can I deduct Texas taxes on my federal return?

You can deduct state and local taxes (SALT) on your federal return, but only up to $10,000 per year. This includes property tax and sales tax. Since Texas has no income tax, most residents deduct property tax or sales tax, whichever is higher.

What happens if I do not pay my property tax?

If property tax goes unpaid, your county can place a lien on your property and eventually foreclose and sell it to recover the debt. Contact your county tax office when ready if you cannot pay on time—they may offer a payment plan or other options.