Texas has no state income tax on wages, salaries, or investment income
Texas is one of nine states with no personal income tax. You do not pay state income tax on wages, salaries, dividends, capital gains, or most other forms of income. This applies whether you live in Texas year-round, moved there recently, or work remotely for a Texas employer from another state.
The absence of income tax is a permanent feature of Texas tax law, not a temporary exemption. Texas funds state government through sales tax, property tax, business taxes, and other revenue sources instead.
If you moved to Texas from a state with income tax, or if you work for a Texas company while living elsewhere, understanding how this affects your tax situation matters for both your current return and your future planning.
Key Takeaways
- Texas residents pay no state income tax on wages, investment income, or retirement distributions, which can result in significant tax savings compared to high-income-tax states.
- If you moved to Texas during the year, you may owe income tax to your previous state for the months you lived there, even though Texas charges nothing.
- Working remotely for an out-of-state employer while living in Texas means you owe no Texas income tax, but you may owe tax to the state where your employer is located.
- Texas property tax and sales tax are generally higher than in states with income tax, so the overall tax burden depends on your spending and property ownership.
- Retirement income, including Social Security, pensions, and IRA distributions, is not subject to Texas state income tax.
How moving to Texas affects your current tax year
If you moved to Texas partway through the year, you are a part-year resident of both Texas and your previous state. Your previous state will tax you on income earned while you lived there, up to the date you moved. Texas will not tax you on any income, regardless of when you earned it.
The key date is your move date, not the date you started a new job. If you moved to Texas on June 15 and started work on June 20, you owe income tax to your previous state for January through June 15. You report this on your previous state's part-year resident return, which asks for your move date and the income earned before you left.
You will file a Texas return only if you owe Texas taxes other than income tax—for example, if you are self-employed and owe franchise tax, or if you have other business obligations. Most people who move to Texas file only their previous state's part-year return and the federal return.
Remote work and out-of-state employers
If you live in Texas but work remotely for a company based in another state, you owe no Texas income tax. However, you may owe income tax to the state where your employer is located. This depends on that state's rules about taxing nonresidents.
Some states tax only residents on wages. Others tax anyone who works for an in-state employer, regardless of where the employee lives. A few states have reciprocal agreements that prevent double taxation. You need to know your employer's state's rule, not Texas's rule, to determine whether you owe that state tax.
Contact your employer's payroll department or the tax authority in your employer's state to confirm. If you owe tax there, your employer may already be withholding it. If not, you will owe it when you file that state's return.
Retirement income and Social Security in Texas
Texas does not tax Social Security benefits, pensions, IRA distributions, 401(k) withdrawals, or other retirement income. This applies to anyone who receives these payments while living in Texas, regardless of which state they worked in or which state the pension is from.
If you are considering moving to Texas in retirement, the absence of income tax on these sources is a significant factor. A $50,000 annual pension is taxed the same way in Texas as a $20,000 pension—not at all. Some retirees moving from high-tax states see their state tax bill drop to zero.
You still owe federal income tax on most retirement income. Social Security may be partially taxable at the federal level depending on your total income, but Texas adds no state tax on top of that.
Sales tax and property tax as the trade-off
Texas funds government without income tax by relying on sales tax and property tax. The state sales tax is 6.25%, and most cities and counties add local sales tax on top, bringing the total to 8% or higher in many areas. This is higher than the national average.
Property tax in Texas varies by county and school district but averages around 0.8% of home value per year. This is moderate compared to some states but higher than states with income tax that use property tax less heavily.
Whether moving to Texas saves you money overall depends on your income level, spending habits, and home value. High earners with modest spending may save significantly. People who spend heavily on taxable goods or own expensive property may find the sales and property taxes offset the income tax savings.
Self-employment and business income in Texas
If you are self-employed or own a business, you owe no Texas income tax on your business profits. However, you may owe Texas franchise tax if your business revenue exceeds certain thresholds. Franchise tax is a separate tax on business revenue, not income tax.
The franchise tax applies to most businesses with more than $1.23 million in annual revenue (this threshold changes yearly). The rate is either 0.375% or 0.75% of revenue, depending on your business structure. Some businesses are exempt, including sole proprietorships below the threshold and certain professional services.
You also owe federal self-employment tax and federal income tax on business profits, regardless of where you live. Texas straightforward does not add a state income tax layer on top of that.
Residency rules and what counts as living in Texas
Texas considers you a resident if you maintain a permanent home in the state and have a substantial presence there. You do not need to own property—renting counts. You do not need to work in Texas—remote work from Texas makes you a resident for tax purposes.
If you split time between Texas and another state, the state where you spend more than half the year generally considers you a resident. If you spend equal time in both, the state where you have a permanent home (or the stronger connections) usually wins. This matters because your previous state may try to tax you as a resident even after you move.
Keep records of your move date, lease or deed, driver's license change, and voter registration change. These documents help prove residency if a state questions whether you really left.
Frequently Asked Questions
Do I owe Texas income tax if I work for a Texas company but live in another state?
No. Texas does not tax nonresidents on income earned in the state. However, your home state may tax you on that income. Check with your home state's tax authority to see whether it taxes residents who work for out-of-state employers, or whether it has a reciprocal agreement with your employer's state.
If I move to Texas mid-year, do I file a Texas return?
Only if you owe Texas taxes other than income tax, such as franchise tax on business revenue. Most people who move to Texas file their previous state's part-year resident return and the federal return, but not a Texas return.
Are military members stationed in Texas subject to state income tax?
No. Federal law exempts military members' pay from state income tax in any state where they are stationed, even if they are not residents. Texas has no income tax anyway, so this does not change your situation, but it protects you if you are stationed in a high-tax state.
Does Texas tax capital gains or investment income?
No. Texas has no tax on capital gains, dividends, interest, or other investment income. This applies to anyone living in Texas, regardless of where the investment is located or which brokerage holds it.
What if my previous state claims I am still a resident after I moved to Texas?
Some states are aggressive about taxing former residents. If your previous state sends you a notice, respond with proof of your move date and Texas residency, such as a lease, deed, driver's license, or utility bill. You may need to file a part-year return or dispute the assessment. Consider consulting a tax professional if the amount is significant.