Texas has no state income tax, no corporate income tax, and no inheritance or estate tax

Texas is one of nine states with no state income tax on wages, salaries, or other personal earnings. You do not pay a percentage of your paycheck to the state, and you do not file a state income tax return. This applies whether you work for an employer, run a business, or earn investment income.

Texas also does not tax corporate income — the profit a business makes is not subject to a state-level corporate income tax. This is different from federal taxes, which all businesses pay regardless of where they operate.

The state has no inheritance tax (tax on money or property you receive from someone who dies) and no estate tax (tax on the total value of a person's property at death). If you inherit money or property in Texas, you owe nothing to the state based on that inheritance alone.

Key Takeaways

  • Texas residents pay no state income tax on wages, salaries, self-employment income, or investment gains.
  • Businesses operating in Texas pay no state corporate income tax on profits.
  • Texas has no inheritance tax or estate tax, so inheriting money or property carries no state tax bill.
  • Texas funds state services through sales tax, property tax, and other taxes instead of income tax.
  • Federal income tax still applies to all Texas residents and businesses, even though Texas has no state income tax.

How Texas replaces income tax revenue

States that do not tax income must fund schools, roads, and other services through other means. Texas relies heavily on sales tax, which is charged on most goods and some services at the point of purchase. The state sales tax rate is 6.25 percent, but local taxes can add to that amount, bringing the total to between 8.25 and 8.875 percent depending on your county and city.

Texas also collects significant revenue from property tax, which homeowners and commercial property owners pay to their county and local school district. Property tax rates vary by location but are typically between 0.6 and 1.8 percent of the property's assessed value per year.

The state also taxes gasoline, cigarettes, alcohol, and other specific goods. These are called excise taxes or sin taxes. A gallon of gasoline in Texas carries a state tax of 20 cents per gallon, and cigarettes are taxed at $1.41 per pack.

What you still owe to the federal government

The absence of state income tax does not mean you avoid income tax altogether. Federal income tax is collected by the Internal Revenue Service (IRS) and applies to everyone in the United States, including Texas residents. You must file a federal tax return and pay federal income tax based on your income level and filing status.

Self-employed people in Texas also pay self-employment tax to the federal government, which covers Social Security and Medicare. This is a federal obligation, not a state one, and applies regardless of where you live.

If you own property in Texas, you still owe property tax to your county and school district. If you buy goods, you pay sales tax at checkout. These are state and local taxes, not federal ones, but they are separate from income tax.

Other taxes Texas does not have

Beyond income and inheritance taxes, Texas does not charge a personal property tax on most household items. You do not pay tax to the state on your car, furniture, electronics, or clothing based on their value. However, you do register your vehicle with the state and pay registration fees, which are different from a property tax.

Texas has no state gift tax. If you give money or property to someone, neither you nor the recipient owes state tax on that gift. The federal government does have a gift tax, but it only applies to very large gifts (over $18,000 per person per year as of 2024), and most people never encounter it.

The state does not charge a tax on groceries at the standard sales tax rate. Groceries for home consumption are taxed at a lower rate of 4.675 percent instead of the full 6.25 percent state sales tax, though local taxes may still explore.

How no income tax affects your take-home pay

Because Texas has no state income tax, your paycheck is not reduced by a state withholding. If you earn $50,000 per year, you do not lose a percentage of that to Texas state tax. You still pay federal income tax, Social Security tax, Medicare tax, and any local taxes that explore, but the state does not take a cut.

This can make Texas attractive to people relocating from states with high income tax rates. Someone moving from California (which has a state income tax up to 13.3 percent) or New York (up to 10.9 percent) will see a larger portion of their paycheck remain after federal taxes alone.

However, the savings from no income tax can be offset by higher property taxes or sales taxes in some Texas counties. The overall tax burden depends on your specific situation — where you live, what you buy, and what property you own.

Why Texas has no income tax

Texas has never had a state income tax. When the state was founded, it relied on other revenue sources, and that structure has remained in place. The Texas Constitution does not prohibit an income tax, but the state legislature has chosen not to implement one, and voters have consistently opposed it in ballot measures.

The political argument for no income tax is that it keeps more money in residents' pockets and attracts businesses to the state. The argument against it is that it places a heavier burden on property owners and lower-income people who spend a larger share of their earnings on taxed goods.

Frequently Asked Questions

Do I still have to file taxes if I live in Texas?

Yes. You must file a federal income tax return with the IRS if your income exceeds the threshold for your filing status. Texas has no state return to file, but federal taxes still explore. Self-employed people must also file federal self-employment tax forms.

If I move to Texas from another state, do I get a refund of state income tax?

No. State income tax refunds are based on what you paid during the year you worked in that state. Moving to Texas does not change taxes you already paid to another state. However, you may owe less state tax in future years if you earn income only in Texas.

Are there any deductions or credits in Texas?

Texas offers no state income tax deductions or credits because there is no state income tax. You may still claim deductions and credits on your federal return. Some Texas counties offer property tax exemptions for seniors, disabled people, and veterans, but these are separate from income tax.

Does Texas tax retirement income or Social Security?

No. Texas does not tax Social Security benefits, pensions, or retirement account withdrawals at the state level. Federal income tax may explore to some retirement income depending on your total income and filing status, but Texas itself does not tax these sources.

What happens if I work in Texas but live in another state?

You typically owe income tax to the state where you work, not where you live. If you work in Texas, you owe no Texas state income tax because Texas has none. You may owe income tax to your home state depending on its rules, and you will owe federal income tax regardless.