Texas Has No State Income Tax on Wages or Salaries
Texas does not charge a state income tax on wages, salaries, or most other forms of personal income. This means you do not pay a state income tax on money you earn from a job, and you do not file a state income tax return to the state of Texas.
This is one of nine states in the United States with no state income tax on wages. Because of this, Texas residents keep more of their paychecks than residents of states that do charge income tax. Your employer will still withhold federal income tax from your paycheck, and you will still file a federal tax return each year — but there is no Texas state return to file.
Texas has had no state income tax since it became a state in 1845. This policy has remained unchanged through the present day, even as other states have added or changed their income tax rates.
Key Takeaways
- Texas residents pay no state income tax on wages, salaries, or most other personal income.
- You still owe federal income tax and will file a federal return, but you do not file a state return to Texas.
- Texas funds state services through sales tax, property tax, and business taxes instead of income tax.
- If you move to Texas from a state with income tax, you will no longer owe that state's income tax once you establish Texas residency.
How Texas Funds State Services Without Income Tax
States need money to pay for schools, roads, police, and other services. Texas raises this money through other taxes instead of income tax. The largest source is sales tax, which Texas residents pay when they buy goods and services. Texas also collects property tax on real estate and business taxes on corporations and certain business activities.
Sales tax in Texas varies by location but ranges from 8.25% to 8.25% depending on your city and county. Property tax rates also vary by county and school district. Together, these taxes replace the revenue that income tax would bring in other states.
This means Texas residents may pay more in sales tax and property tax than residents of states with income tax, depending on where they live and how much they spend. The trade-off is that your paycheck is not reduced by state income tax withholding.
What Income Is Not Taxed in Texas
Texas does not tax wages, salaries, tips, bonuses, or most other forms of earned income. You also do not pay state income tax on interest, dividends, or capital gains in Texas. This applies whether you are a Texas resident or a nonresident who earned money in Texas.
The one exception is that Texas does not tax most types of income, but you should know that some states tax residents on income earned anywhere in the world, even if you move away. Texas does not do this — once you leave Texas, you stop owing Texas income tax on new income, even if you earned it while living in Texas.
Moving to Texas From a State With Income Tax
If you move to Texas from a state that charges income tax, you will no longer owe that state's income tax on income you earn after you move, as long as you establish Texas residency. Residency is usually established by getting a Texas driver's license, registering your vehicle in Texas, and living in the state for more than 183 days in a calendar year.
Your old state may still tax income you earned while you lived there. For example, if you worked in California for part of the year and moved to Texas mid-year, California will tax the income you earned before you left. You will need to file a part-year return in your old state showing the dates you lived there.
Once you are a Texas resident, you will not owe state income tax to Texas on any new income. You will still owe federal income tax, and you may owe property tax or sales tax in Texas depending on what you buy and own.
Federal Income Tax Still Applies in Texas
Even though Texas has no state income tax, you still owe federal income tax to the U.S. government. Your employer will withhold federal tax from your paycheck based on the W-4 form you fill out when you start a job. You will file a federal tax return each year with the Internal Revenue Service (IRS).
The federal tax you owe depends on how much you earned, your filing status, and the number of dependents you claim. Texas residency does not change your federal tax obligations — you would owe the same federal tax if you lived in any other state.
Many Texas residents use tax software or hire a tax preparer to file their federal return. Because there is no state return to file, the process is simpler than in states that require both federal and state returns.
Self-Employment and Business Income in Texas
If you are self-employed or own a business in Texas, you do not pay state income tax on your business income. However, you still owe federal self-employment tax and federal income tax on your profits. You will also owe Texas franchise tax if your business meets certain thresholds, though this is a business tax, not an income tax.
Self-employed people in Texas file a federal Schedule C with their federal return to report business income and expenses. You may also need to pay estimated federal taxes quarterly if you expect to owe more than a certain amount. A tax preparer or accountant can help you understand what you owe.
Frequently Asked Questions
Do I have to file a state tax return in Texas?
No. Texas has no state income tax, so you do not file a state return. You will still file a federal return with the IRS if you earned income or meet other filing requirements. Check the IRS website or speak with a tax preparer to see if you must file federally.
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 are residents or nonresidents. You would owe income tax to the state where you live, not to Texas. Your employer in Texas will not withhold state income tax from your paycheck.
Does Texas tax retirement income, Social Security, or pensions?
No. Texas does not tax any form of income, including retirement income, Social Security benefits, or pension payments. This applies to Texas residents only — if you move out of Texas, your new state may tax this income.
What if I inherit money or receive a gift in Texas?
Texas does not charge state income tax on inheritances or gifts. The federal government does not tax gifts or inheritances for the person who receives them, either. Your only concern would be if the inherited money earns interest or dividends — you would owe federal tax on that earnings, but not Texas state tax.
Can I deduct property tax or sales tax on my federal return if I live in Texas?
Yes, but only property tax. You can deduct state and local property taxes (up to a limit) on your federal return. Sales tax is generally not deductible on your federal return. Speak with a tax preparer about whether deductions make sense for your situation.