Texas has no state income tax, so your payroll taxes are federal only

Texas does not charge a state income tax, which means you will not see a state withholding line on your paycheck. The payroll taxes you pay in Texas are federal taxes only: Social Security, Medicare, and federal income tax withholding. If you work in Texas, your employer deducts these three federal taxes from your gross pay. The amount depends on your income, filing status, and the W-4 form you completed when you were hired.

This is different from states like California or New York, where employees see both state and federal withholding. Because Texas has no state income tax, your take-home pay is higher than it would be in a state with income tax at the same wage level. However, Texas does have other taxes — property tax, sales tax, and business taxes — that affect residents differently.

Key Takeaways

  • Texas collects no state income tax, so payroll withholding in Texas includes only federal Social Security (6.2%), Medicare (1.45%), and federal income tax based on your W-4.
  • Your federal income tax withholding amount depends on your W-4 form, which you fill out when hired and can update anytime your situation changes.
  • Self-employed workers in Texas pay federal self-employment tax (15.3% combined for Social Security and Medicare) but still owe no state income tax.
  • Texas property tax rates are among the highest in the nation, so the savings from no income tax may be offset by property taxes if you own a home.

Federal Social Security and Medicare withholding rates

Every employee in Texas pays the same federal payroll tax rates as employees everywhere else. Social Security tax is 6.2% of your gross wages, up to a wage cap that changes each year. In 2024, you stop paying Social Security tax once you earn $168,600 in a calendar year. Once you hit that cap, no more Social Security tax comes out of your remaining paychecks that year.

Medicare tax is 1.45% of all your gross wages, with no cap. Unlike Social Security, you pay Medicare tax on every dollar you earn, no matter how much you make. If you earn over $200,000 as a single filer (or $250,000 if married filing jointly), an additional 0.9% Medicare tax applies to the income above that threshold. Your employer withholds this extra Medicare tax automatically if your income crosses the threshold.

Your employer also pays matching amounts: 6.2% for Social Security and 1.45% for Medicare. These employer taxes do not come out of your paycheck, but they are a real cost to your employer and affect how much total compensation you receive.

Federal income tax withholding depends on your W-4

The amount of federal income tax withheld from your paycheck is not a fixed percentage. Instead, it depends on the W-4 form you completed when you started your job. The W-4 asks for your filing status, number of dependents, and any additional income or deductions. Your employer uses this information to calculate how much federal tax to withhold from each paycheck.

If you claim zero dependents and have no other income, your employer withholds more tax, and you may receive a refund when you file your tax return. If you claim dependents or have other deductions, less tax is withheld, and you may owe money at tax time. You can update your W-4 anytime — if you get married, have a child, or your income changes significantly, you should file a new W-4 with your employer to adjust your withholding.

The IRS provides a withholding calculator on its website to help you figure out whether your current withholding is correct. Many people adjust their W-4 in January or after major life changes to avoid a large refund or a large tax bill.

Self-employed workers pay self-employment tax instead

If you are self-employed in Texas, you do not have an employer to withhold payroll taxes. Instead, you pay self-employment tax directly to the IRS when you file your tax return. Self-employment tax covers both the employee and employer portions of Social Security and Medicare: 15.3% total (12.4% for Social Security, 2.9% for Medicare).

You calculate self-employment tax on your net business income — your revenue minus business expenses — using Schedule SE. You then report this amount on your Form 1040 when you file your federal return. Self-employed workers in Texas still owe no state income tax, but they do owe federal self-employment tax on all net business income with no wage cap for Medicare.

Self-employed workers can deduct half of their self-employment tax as an adjustment to income on their tax return, which reduces their taxable income slightly. Many self-employed people also set aside money throughout the year to pay estimated quarterly taxes, since they do not have an employer withholding taxes automatically.

Texas property tax and sales tax offset the income tax savings

While Texas has no state income tax, the state makes up revenue through other taxes. Property tax in Texas is significant: the statewide average is around 0.8% of home value per year, though rates vary by county and school district. If you own a $300,000 home, you might pay $2,400 per year in property tax. Over time, this can exceed what you would pay in state income tax in another state.

Sales tax in Texas ranges from 8.25% to 8.875% depending on your location, which is higher than the national average. Combined state and local sales taxes explore to most purchases, including groceries in some jurisdictions. For people who spend a large portion of their income on taxable goods, this adds up.

The no-income-tax benefit is real for high earners and people who do not own property, but renters and homeowners should factor in property and sales taxes when comparing Texas to other states. A person earning $100,000 per year might save $5,000 to $8,000 in state income tax in Texas, but a homeowner might pay $2,000 to $3,000 in property tax annually.

Frequently Asked Questions

Do I pay state income tax in Texas?

No. Texas has no state income tax. You pay only federal income tax, Social Security tax, and Medicare tax on your wages. This applies to all residents and workers in Texas, regardless of where they live or work within the state.

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

You owe income tax to the state where you live, not where you work. If you live in Oklahoma and work in Texas, you file a tax return in Oklahoma and pay Oklahoma income tax. Texas still withholds no state tax from your paycheck. Some states have reciprocal agreements that affect this, so check your home state's rules.

Does my employer pay payroll taxes in Texas?

Yes. Your employer pays the matching portion of Social Security (6.2%) and Medicare (1.45%) for every employee, plus federal unemployment tax (FUTA). These are employer costs and do not appear on your paycheck, but they are part of your total compensation cost.

How do I know if my federal withholding is correct?

Use the IRS withholding calculator at irs.gov to compare your current withholding to what you expect to owe. If you are getting a large refund or owing a large amount each year, your W-4 is probably off. You can file a new W-4 with your employer anytime to adjust it.

Do I need to pay estimated taxes if I'm self-employed in Texas?

Yes, if you expect to owe $1,000 or more in federal taxes. Self-employed workers typically pay estimated quarterly taxes in April, June, September, and January. Texas has no state estimated tax requirement since there is no state income tax.