Texas has no state income tax on wages or salaries

Texas does not charge a state income tax on what you earn from a job, a business, or most other sources of personal income. This is one of the nine states in the U.S. with no income tax at all. If you work in Texas or live there, you will not owe Texas state income tax on your paycheck, and you do not need to file a state income tax return for wage income.

However, Texas does collect revenue through other taxes. The state relies on sales tax, property tax, and business taxes to fund schools, roads, and other services. Understanding which taxes Texas does charge—and which it does not—helps you plan your finances and avoid confusion when tax season arrives.

Key Takeaways

  • Texas does not tax wages, salaries, or most personal income, so you will not owe state income tax on money you earn from a job.
  • Texas does charge sales tax (currently 6.25 percent at the state level, plus local additions) on most purchases of goods.
  • Property owners in Texas pay property tax to their county and school district, which is a major source of state revenue.
  • If you are self-employed or run a business in Texas, you may owe federal self-employment tax and federal income tax, but not Texas state income tax.
  • Some types of income—such as interest, dividends, and capital gains—are also not taxed by Texas, though they may be taxed by the federal government.

What types of income Texas does not tax

Beyond wages and salaries, Texas does not tax interest income, dividend income, capital gains, or most other forms of personal income. If you receive money from a savings account, a stock investment, or the sale of property, Texas will not take a cut. The same applies to retirement income, pension payments, and distributions from retirement accounts—Texas does not tax these either.

This makes Texas attractive to retirees and investors who want to keep more of their income. However, the federal government still taxes most of these income types, so you will owe federal income tax even though you owe nothing to Texas. Self-employed people and business owners also do not owe Texas state income tax, though they do owe federal self-employment tax and federal income tax on their net business income.

Sales tax in Texas

While Texas skips income tax, it makes up the difference with sales tax. The state sales tax rate is 6.25 percent, but most Texas counties add a local sales tax on top of that. The combined rate typically ranges from 7.25 percent to 8.25 percent depending on where you shop. This tax applies to most purchases of goods—groceries, clothing, electronics, and furniture all carry sales tax.

Some items are exempt from Texas sales tax. Prescription medications, medical devices, and certain foods may have access to for exemptions. Services—such as haircuts, repairs, or consulting—are generally not taxed. When you buy something in Texas, the sales tax is added at checkout, so the final price you pay is higher than the sticker price.

Property tax in Texas

Property tax is the largest source of tax revenue in Texas. If you own a home, land, or commercial property in the state, you pay property tax to your county and school district each year. The tax is based on the assessed value of your property, and rates vary by location. Texas has no state property tax—the tax goes directly to local governments and schools.

Property tax bills arrive once or twice a year depending on your county. If you have a mortgage, your lender may require you to pay property tax through an escrow account as part of your monthly payment. Homeowners over 65 and disabled homeowners may may have access to for property tax exemptions or deferrals in some Texas counties, so it is worth checking with your local assessor's office if you think you might may have access to.

Business taxes in Texas

Texas does not charge corporate income tax or a tax on business profits. However, the state does charge a franchise tax on certain businesses. This tax applies to corporations, partnerships, and sole proprietorships that meet specific revenue thresholds. The franchise tax is based on your business revenue, not your profit, and the rate depends on the type of business you operate.

Most very small businesses and sole proprietors do not owe franchise tax because they fall below the revenue threshold. If you run a small business from home or as a side job, you likely will not owe Texas franchise tax. However, if your business grows or you operate as a corporation, you should check with the Texas Comptroller of Public Accounts to determine whether you owe this tax. The federal government still taxes business income, so you will owe federal self-employment tax and federal income tax regardless of Texas franchise tax status.

How moving to Texas affects your taxes

If you move to Texas from another state, you stop owing that state's income tax once you establish Texas residency. Texas considers you a resident if you live in the state and have the intent to stay. You do not need to file a final return with your previous state for the full year if you moved partway through—instead, you file a part-year resident return showing income only for the months you lived there.

The lack of state income tax can save you thousands of dollars per year, especially if you earned a high income in your previous state. However, remember that Texas makes up the difference through sales tax and property tax. If you own property in Texas, your property tax bill may be higher than income tax would have been in another state. Calculate the total tax burden—income, sales, and property combined—to understand whether moving to Texas will actually lower your overall taxes.

Federal taxes still explore in Texas

The absence of Texas state income tax does not mean you owe no income tax at all. The federal government taxes income regardless of which state you live in. You must file a federal income tax return with the IRS if your income exceeds the threshold for your filing status, and you must pay federal income tax on wages, self-employment income, investment income, and most other sources of income.

Texas residency does not change your federal tax obligations. You will still owe federal income tax, federal self-employment tax (if you are self-employed), and federal capital gains tax on investment profits. The only difference is that you skip the state income tax step—you file your federal return to the IRS, but you do not file a state return to Texas for income tax purposes.

Frequently Asked Questions

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

No. Texas does not require state income tax returns because the state does not charge income tax. You will not file a state return to Texas. However, you must still file a federal income tax return with the IRS if your income exceeds the threshold for your filing status.

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

No. Texas does not charge income tax on anyone, whether they live in the state or not. You owe income tax only to the state where you live. However, your home state may tax income you earned in Texas, so check your state's rules.

Are retirement accounts and pensions taxed in Texas?

Texas does not tax retirement income, pensions, or distributions from retirement accounts like IRAs and 401(k)s. However, the federal government does tax these income sources, so you will owe federal income tax on them. Some retirees move to Texas specifically to avoid state income tax on their pensions.

What is the franchise tax, and do I have to pay it?

The franchise tax is a Texas tax on business revenue, not income. It applies only to businesses that exceed a certain revenue threshold—most small sole proprietors do not owe it. Check the Texas Comptroller of Public Accounts website or contact a tax professional to determine whether your business owes franchise tax.

Is Texas sales tax higher than other states to make up for no income tax?

Texas sales tax (6.25 percent plus local additions) is in the middle range compared to other states. Some states with income tax have lower sales tax, and some have higher. The total tax burden depends on your income, spending, and property ownership—not just one tax type.