Texas has no state income tax on wages, salaries, or most other personal income

Texas does not charge a state income tax on what you earn from a job, self-employment, investments, or retirement accounts. This is one of nine states with no personal income tax at all. If you live and work in Texas, you will not file a state income tax return or owe state income tax on your W-2 wages, 1099 contractor income, or capital gains.

However, Texas does collect other taxes to fund state operations. Understanding which taxes explore to you matters because they affect what you owe and what forms you file. The absence of income tax does not mean you owe nothing to the state.

Key Takeaways

  • Texas collects no state income tax on wages, self-employment income, investment gains, or retirement withdrawals.
  • Texas does charge a state sales tax of 6.25 percent, plus local sales taxes that vary by county and city.
  • Texas has a franchise tax (also called the business tax) that applies to certain businesses with revenue above a threshold, not to individual wage earners.
  • You still file a federal income tax return with the IRS even though you owe nothing to Texas on income.
  • If you moved to Texas from another state, you may still owe that state's income tax on income earned while you lived there.

What taxes Texas does collect instead of income tax

Texas funds state government through sales tax, property tax, and business taxes rather than income tax. The state sales tax rate is 6.25 percent on most goods and services. When you buy something in Texas, you also pay local sales tax set by your county or city, which ranges from 0.125 percent to 2 percent depending on where you live. The total sales tax you pay can range from 6.25 percent to over 8 percent.

Property tax in Texas is set by individual counties and school districts, not by the state. The rate varies widely by location. Texas also collects a franchise tax from businesses, but this applies only to businesses with revenue above a certain threshold and does not affect individual workers who receive a paycheck.

Who must still file a federal return even without state income tax

Living in Texas does not change your federal tax obligations. You must file a federal income tax return with the IRS if your income exceeds the threshold for your filing status, regardless of whether Texas taxes that income. For 2024, a single person under 65 must file if their income is $14,600 or more. These thresholds change each year.

You file your federal return the same way whether you live in Texas or any other state. The IRS does not care that Texas has no income tax. Your federal return goes to the IRS, not to any Texas agency.

What happens if you moved to Texas from another state

If you moved to Texas during the year, you may owe income tax to your previous state for the months you lived there. Most states tax income earned while you were a resident, even if you left partway through the year. You will need to file a part-year resident return with that state and report only the income you earned before you moved.

Your previous state will want to know your move date and your income for each period. Keep your lease, mortgage documents, or utility bills showing when you established Texas residency. Some states allow a credit for taxes paid to another state, which can reduce what you owe, but you must file the return to claim it.

Self-employed workers and business owners in Texas

If you are self-employed or own a business, you do not pay Texas state income tax on your business income. However, you must pay federal self-employment tax (Social Security and Medicare) to the IRS, and you file Schedule C with your federal return to report business income and expenses.

Depending on your business structure and revenue, you may owe the Texas franchise tax. This applies to most businesses with revenue of $1.23 million or more in a year, though some business types are exempt. Sole proprietors with revenue below this threshold do not owe it. If you are unsure whether your business owes franchise tax, the Texas Comptroller's office has a questionnaire on its website to help you determine this.

Retirement income and investment income in Texas

Texas does not tax retirement distributions from IRAs, 401(k)s, or pensions. You can withdraw from these accounts without owing Texas state tax. You will still owe federal income tax on most retirement withdrawals, and you must report them on your federal return.

Investment income—including capital gains, dividends, and interest—is also not taxed by Texas. If you sell stock at a profit or receive dividend payments, you owe federal tax on that income but nothing to Texas. This applies whether you live in Texas full-time or part-time.

How to file taxes as a Texas resident

Because Texas has no state income tax, you file only a federal return. You can file with the IRS using free software if your income is below a certain threshold, or you can pay a tax preparer to file for you. The IRS has a list of free filing options on its website.

You will need your W-2 forms from your employer, or your 1099 forms if you are self-employed or a contractor. Gather these documents by January 31 of the year following the tax year. If you moved to Texas from another state, you will also need to file a part-year resident return with that state, which you can usually do through that state's tax agency website.

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 not having income tax does not change your federal obligations. You file the same federal return you would file in any other state.

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

You owe income tax to the state where you live, not to Texas. Your home state taxes your income regardless of where you work. However, some states offer a credit for taxes paid to another state, so check with your home state's tax agency about filing requirements.

Does Texas tax retirement income or Social Security?

No. Texas does not tax retirement distributions, pensions, or Social Security benefits. You will owe federal tax on most retirement income, but nothing to Texas. This is one reason many people move to Texas after retiring.

If I move out of Texas, do I owe back taxes?

No. You do not owe Texas income tax for any year you lived there because Texas does not have income tax. However, you will owe income tax to your new state starting from the date you establish residency there.

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

The franchise tax is a business tax, not an income tax. It applies to most businesses with revenue of $1.23 million or more per year. If you are a sole proprietor or employee earning a paycheck, you do not owe it. Check the Texas Comptroller's website if you own a business and are unsure whether you meet the threshold.