Texas has no state income tax, but you still owe federal income tax and other levies

Texas does not charge a state income tax on wages, salaries, or investment income. That means you will not file a Texas state income tax return or send money to the state based on what you earn. However, you still owe federal income tax to the IRS, and Texas collects other taxes that affect your wallet: sales tax, property tax, and excise taxes on specific goods.

The absence of state income tax is why Texas attracts people from higher-tax states, but it is not the same as paying no tax at all. Texas funds schools, roads, and state services through sales and property taxes instead, which means the tax burden falls differently depending on what you buy and own.

Key Takeaways

  • Texas has no state income tax on wages or investment income, so you will not owe the state anything based on your salary.
  • Texas sales tax ranges from 8.25% to 8.875% depending on your city and county, and applies to most goods but not groceries or prescription drugs.
  • Property tax in Texas varies by county and school district, with rates typically between 0.6% and 1.8% of your home's value each year.
  • You still owe federal income tax to the IRS even though Texas has no state income tax.
  • Certain items like motor vehicles, fuel, and alcohol face additional state excise taxes beyond the standard sales tax.

Sales tax: what you pay at the register

Texas sales tax starts at 6.25% statewide, but your actual rate depends on your city and county. Most Texas residents pay between 8.25% and 8.875% because local governments add their own sales tax on top of the state rate. For example, Travis County (Austin) charges 8.25% total, while Harris County (Houston) charges 8.25%, and some smaller counties may be lower or higher.

Sales tax applies to most goods you buy in stores, online purchases shipped to Texas, and some services. Groceries for home consumption are exempt, as are prescription drugs and medical devices. Restaurant meals, prepared foods, and non-prescription items are taxable. When you buy something, the tax is included in the final price you see at checkout.

If you own a business or buy items for resale, you can provide a resale certificate to avoid paying sales tax on those purchases. The certificate tells the seller you are buying for business purposes and will collect sales tax from your own customers instead.

Property tax: the largest tax bill for homeowners

Property tax is usually the biggest tax expense for Texas homeowners. The state does not set a single rate; instead, each county and school district sets its own. Rates typically range from 0.6% to 1.8% of your home's assessed value per year, though some districts are higher or lower. A home worth $300,000 in a district with a 1.2% rate would owe $3,600 per year in property tax.

Your county appraisal district determines your home's value each year, and that value is the basis for your tax bill. You can protest the appraisal if you believe it is too high; the appraisal district will hold a hearing. Property taxes are due in two installments, usually in October and January, though your mortgage lender may collect them monthly as part of your escrow payment.

Texas offers a homestead exemption that reduces the taxable value of your primary residence. The exemption amount varies by school district but typically reduces your taxable value by $25,000 to $40,000. Homeowners over 65 may may have access to for additional exemptions or a freeze on the tax amount they owe.

Federal income tax: what you owe the IRS

Even though Texas has no state income tax, you still owe federal income tax based on your income level and filing status. Federal tax rates range from 10% to 37% depending on your income bracket, and you file Form 1040 with the IRS by April 15 each year. If you are self-employed, you also owe self-employment tax (Social Security and Medicare), which is 15.3% of your net business income.

Your employer withholds federal income tax from each paycheck based on the W-4 form you complete. If too much is withheld, you get a refund when you file your return. If too little is withheld, you owe the difference. You can adjust your withholding during the year by submitting a new W-4 to your employer.

Texas residents with investment income, retirement distributions, or rental income must report that to the IRS as well. The state does not tax it, but the federal government does. If you have significant non-wage income, you may need to make quarterly estimated tax payments to the IRS.

Excise taxes on specific goods

Texas adds excise taxes on top of sales tax for certain items. Motor fuel is taxed at 20 cents per gallon statewide, plus federal excise tax of 18.4 cents per gallon. Alcohol faces additional state excise taxes: beer is taxed at $0.20 per gallon, wine at $0.20 per gallon, and spirits at $2.40 per gallon, on top of sales tax.

Cigarettes and smokeless tobacco are taxed at $1.41 per pack of cigarettes and $0.50 per ounce of smokeless tobacco. Motor vehicles are subject to a one-time sales tax when you buy them, calculated on the purchase price. If you register a vehicle in Texas, you also pay an annual registration fee that varies by vehicle weight and type.

How to estimate your total Texas tax burden

To get a rough picture of what you will pay, add up the pieces: federal income tax (based on your income and filing status), sales tax (8.25% to 8.875% on most purchases), property tax if you own a home (0.6% to 1.8% of value annually), and excise taxes on fuel, alcohol, and tobacco if you use those items.

Your federal income tax is the largest variable and depends entirely on your income. Use the IRS tax tables or a tax calculator to estimate what you owe. Your sales tax is predictable once you know your local rate. Property tax is fixed once your home is appraised, though the appraisal can change year to year.

If you are moving to Texas from another state, compare your old state's income tax rate to what you will now pay in property and sales tax. Many people find that the lack of state income tax more than offsets higher property taxes, but the math depends on your income level and home value.

Deductions and credits that reduce what you owe

Even though Texas has no state income tax, you can still reduce your federal tax bill through deductions and credits. The standard deduction for 2024 is $14,600 for single filers and $29,200 for married couples filing jointly. If you itemize instead, you can deduct mortgage interest, property taxes (up to $10,000 per year), charitable donations, and certain other expenses.

Tax credits directly reduce the tax you owe. The Earned Income Tax Credit (EITC) helps lower-income workers, the Child Tax Credit provides $2,000 per child under 17, and the American Opportunity Credit helps with education costs. These credits are federal, not state-specific, but they explore to Texas residents the same way they explore everywhere.

If you are self-employed, you can deduct half of your self-employment tax, home office expenses, and business supplies. Retirement contributions to a traditional IRA or 401(k) reduce your taxable income. Consulting a tax professional can help you find deductions and credits specific to your situation.

Frequently Asked Questions

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

No. Texas has no state income tax, so you will not file a state return or owe the state based on your income. You still file a federal return with the IRS if your income exceeds the threshold for your filing status.

What is the sales tax rate where I live?

Texas sales tax ranges from 8.25% to 8.875% depending on your city and county. You can find your exact rate by entering your address on the Texas Comptroller's website or asking a local retailer. The rate is fixed for your location and applies to most goods except groceries and prescription drugs.

How do I know what my property tax rate is?

Your county appraisal district sets the value of your home, and your school district and county set the tax rate. You can find your rate by contacting your county appraisal district or checking your property tax bill. Rates vary widely across Texas, from under 0.6% to over 1.8% of home value annually.

Can I deduct Texas property tax on my federal return?

Yes, but only up to $10,000 per year total for state and local property taxes, sales taxes, and income taxes combined. This is the SALT cap set by federal law. If you pay more than $10,000 in property tax alone, you can only deduct $10,000 of it on your federal return.

Does Texas tax retirement income or Social Security?

Texas does not tax retirement income, Social Security, or distributions from IRAs and 401(k)s. However, the federal government may tax some of your Social Security benefits depending on your total income. Texas residents with federal tax liability still owe the IRS, but the state takes nothing from retirement income.