Texas has no state income tax, but you still pay property tax, sales tax, and other state fees

Texas does not charge a state income tax on wages, salaries, or investment earnings. This is the single biggest difference between Texas and most other states. You will not file a Texas state income tax return or pay state income tax on money you earn.

However, Texas funds state government through other taxes. The largest are sales tax (charged when you buy goods and services), property tax (charged by counties and school districts on real estate), and business taxes (charged on certain business activities). Texas also collects taxes on fuel, cigarettes, alcohol, and other specific items.

Federal income tax still applies in Texas. You must file a federal return and pay federal tax on your income, just as you would in any state. The lack of state income tax does not affect your federal obligation.

Key Takeaways

  • Texas has no state income tax on wages, so you will not owe Texas state tax on your paycheck or investment income.
  • Sales tax in Texas ranges from 8.25% to 8.875% depending on your county and city, and applies to most goods and many services.
  • Property tax is the largest source of state revenue and is set by your county and school district, not by the state.
  • Federal income tax still applies in Texas and is separate from state taxes.
  • Businesses pay a franchise tax based on revenue, not a corporate income tax.

Sales tax: what you pay at checkout

When you buy something in Texas, you pay sales tax at the point of sale. The state sets a base rate of 6.25%, but counties and cities can add their own local sales tax on top of that. Your total sales tax rate depends on where you live and where you shop.

Most Texas counties charge between 8.25% and 8.875% total. For example, if you buy a $100 item in Harris County (Houston), you pay roughly $8.25 in sales tax. The same item in Travis County (Austin) costs roughly $8.25 as well, though the breakdown between state and local portions differs.

Sales tax applies to most goods: clothing, groceries, electronics, furniture, and household items. It also applies to many services, including haircuts, repairs, and restaurant meals. Some items are exempt, including prescription medications and certain medical equipment. The Texas Comptroller of Public Accounts website lists what is and is not taxed.

Property tax: the largest tax bill for homeowners

Property tax is charged on the value of real estate you own. It is set and collected by your county and school district, not by the state, which means the rate varies significantly depending on where your property is located. A home worth $300,000 in one county may have a very different tax bill than the same home in another county.

Property tax is calculated by multiplying your property's assessed value by the tax rate set by your local taxing units. Your county appraisal district determines the assessed value, and your county, school district, city, and other local entities set their own rates. You receive a property tax bill once or twice per year, depending on your county.

Homeowners may be may have access to to a homestead exemption, which reduces the assessed value used to calculate tax. The amount of the exemption varies by county and school district. You must file for the exemption with your county appraisal district by a set important date, usually in April.

Business taxes: franchise tax and sales tax collection

Texas does not have a corporate income tax, but most businesses pay a franchise tax based on revenue. The rate depends on the type of business and how much money it brings in. Sole proprietors and partnerships with revenue below a certain threshold may not owe franchise tax.

Businesses that sell goods or services also collect sales tax from customers and send it to the state. The business acts as a collector; the tax is ultimately paid by the customer, not the business itself. Businesses file sales tax returns monthly, quarterly, or annually depending on how much tax they collect.

Fuel tax, cigarette tax, and alcohol tax

Texas charges excise taxes on specific products. Fuel tax is included in the price you pay at the pump: roughly 20 cents per gallon for gasoline and 20 cents per gallon for diesel. Cigarettes are taxed at $1.41 per pack. Alcohol is taxed differently depending on the type: beer, wine, and spirits each have their own rates.

These taxes are built into the price you see, so you do not pay them separately at checkout. They fund specific state programs: fuel tax goes to road maintenance, for example.

Federal income tax still applies in Texas

The absence of state income tax does not change your federal tax obligation. You must file a federal income tax return with the Internal Revenue Service (IRS) and pay federal tax on your income at the rates set by federal law. Your federal tax bracket and amount owed depend on your income level and filing status, not on where you live.

If you work in Texas but live in another state, or vice versa, you may owe income tax to both states. Some states have reciprocal agreements that prevent double taxation, but Texas does not have state income tax to begin with, so this is not an issue for Texas residents.

How Texas compares to other states

Texas is one of nine states with no state income tax. The others are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Washington, and Wyoming. These states rely more heavily on sales tax, property tax, and other revenue sources than states with income tax.

States with income tax typically have lower sales tax and property tax rates to compensate. Texas has a relatively high property tax rate compared to the national average, which offsets the lack of income tax. The total tax burden varies by individual circumstances: high earners may pay less in Texas than in a state with income tax, while renters may pay more in sales tax.

Frequently Asked Questions

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

No. Texas has no state income tax, so you do not file a state return or pay state income tax on wages or investment earnings. You still must file a federal return with the IRS if your income exceeds the federal threshold.

Is sales tax the same everywhere in Texas?

No. The state sets a base rate of 6.25%, but counties and cities add local sales tax on top of that. Your total rate depends on your location and can range from 8.25% to 8.875% or higher in some areas.

What is the homestead exemption and how do I get it?

The homestead exemption reduces the assessed value of your primary residence, which lowers your property tax bill. You must file for it with your county appraisal district by the important date, usually in April. The amount of the exemption varies by county and school district.

Do I pay federal income tax if I live in Texas?

Yes. Federal income tax applies in every state, including Texas. The lack of state income tax does not affect your federal obligation. You file with the IRS and pay federal tax based on your income and filing status.

What is the franchise tax and who pays it?

The franchise tax is a state tax on business revenue. Most businesses pay it, though the rate and threshold depend on business type and size. It is separate from sales tax and is not charged to individuals on wages.