Texas does not have a state income tax on wages, salaries, or investment income
Texas is one of nine states with no state income tax. You will not owe Texas state income tax on money you earn from a job, self-employment, dividends, capital gains, or retirement accounts. This applies whether you live in Texas full-time, moved there during the year, or work remotely for a Texas employer while living elsewhere.
The absence of state income tax does not mean Texas has no state taxes at all. Texas funds state services through sales tax, property tax, business taxes, and other revenue sources. But for individual income — the money you report on your federal return — Texas collects nothing.
If you moved to Texas from another state or are considering the move, this changes what you file and what you owe. It also affects how you think about your overall tax burden, because Texas makes up the difference with other taxes.
Key Takeaways
- You will not file a Texas state income tax return or pay state income tax on wages, self-employment income, or investment gains.
- Texas funds state government through sales tax (which is higher than the national average), property tax, and business taxes instead.
- If you moved to Texas mid-year from a state with income tax, you may still owe that state's income tax on income earned before you left.
- Your federal tax return is the same whether you live in Texas or another state — state income tax does not change your federal filing.
- Texas has no local income tax either, so no city or county in Texas collects income tax from residents or workers.
What you file if you live in Texas
You file a federal return with the IRS, just as you would in any state. You do not file a separate state return to Texas. The IRS Form 1040 and any supporting schedules (Schedule C for self-employment, Schedule D for capital gains, and so on) are the only income tax forms you need to complete.
If you earned income in another state — for example, you worked part of the year in California before moving to Texas — you may owe that state's income tax on the portion of income earned there. That state, not Texas, will require a return. Texas will not ask for anything.
Some people mistakenly file a Texas return out of habit or caution. The Texas Comptroller of Public Accounts does not process individual income tax returns because there is no individual income tax to report. If you file one, it will not be processed and will not affect your tax situation.
How Texas taxes compare to other states
Texas has no income tax, but the state makes up that revenue through other taxes. Texas sales tax is 6.25 percent at the state level, and most cities and counties add local sales tax on top of that, bringing the total to between 8.25 and 8.875 percent depending on where you shop. That is higher than the national average sales tax of around 7.1 percent.
Property tax in Texas varies by county and school district but averages around 1.6 to 1.8 percent of home value per year. This is higher than the national average. If you own a home or rent (and your landlord passes the cost to you), you will pay more in property tax than you would in some other states.
The trade-off is that you pay nothing on income. For high earners, this can mean significant savings. For people on fixed incomes or those who rent and spend heavily on taxed goods, the advantage is smaller. The overall tax burden depends on your personal situation — your income level, whether you own property, and how much you spend.
Moving to Texas mid-year and your tax situation
If you moved to Texas partway through the year, your federal return stays the same. You report all income earned in all states on your Form 1040. However, the state you moved from may require you to file a return for the portion of the year you lived there and earned income there.
For example, if you lived in New York from January through June and earned $40,000, then moved to Texas and earned $35,000 from July through December, New York will want a return showing the $40,000 earned while you were a resident. Texas will want nothing. You will owe New York state income tax on the $40,000 (at New York's rates) and nothing to Texas.
Some states allow you to claim a credit on your federal return for taxes paid to another state, which reduces your federal liability. The IRS Form 1040 instructions explain how to claim this credit. Your tax software will usually handle this automatically if you enter that you lived in multiple states.
Self-employment income and Texas
If you are self-employed, you do not owe Texas state income tax on your business income. You will owe federal self-employment tax (Social Security and Medicare), which you report on Schedule SE and pay with your federal return. You will also owe federal income tax on your net profit. But Texas collects nothing.
Texas does have a franchise tax, which is a tax on business revenue. This applies to businesses, not to self-employed individuals filing as sole proprietors in most cases. If your business is structured as an LLC, S-corporation, or partnership, you may owe franchise tax depending on your revenue and structure. This is separate from income tax and is a business-level tax, not a personal income tax.
For most freelancers and solo self-employed people, franchise tax does not explore. If you have questions about whether your business structure triggers it, the Texas Comptroller of Public Accounts website has a franchise tax threshold tool, or you can consult a tax professional familiar with Texas business taxes.
Retirement income and investment income in Texas
Texas does not tax retirement income. If you receive Social Security, pension payments, distributions from an IRA or 401(k), or annuity payments, Texas will not tax those. You will owe federal income tax on most of these (Social Security is partially taxable at the federal level; traditional IRA and 401(k) withdrawals are fully taxable; Roth withdrawals are not), but Texas takes nothing.
Investment income — dividends, capital gains, interest — is also not taxed by Texas. If you sell a stock at a profit or receive dividend payments, you owe federal capital gains tax and federal income tax on the gain or dividend, but no Texas state tax. This is one reason some retirees and investors choose to move to Texas.
Keep in mind that if you moved to Texas from another state and sold investments while you were still a resident of that state, you may owe that state's tax on the gain. The timing of when you sold and when you established Texas residency matters for states that tax capital gains.
Residency and Texas taxes
Texas considers you a resident for tax purposes if you live there with the intent to remain. You do not need to own a home or have a driver's license to be a resident — living there and intending to stay is enough. If you are a student, military member, or temporary worker, your residency status may be different, and you might still owe taxes to your home state.
If you are unsure whether you are considered a Texas resident, the Texas Comptroller of Public Accounts publishes guidance on residency. In general, if you moved to Texas and established a home there, you are a resident and owe no state income tax. If you are still a resident of another state (for example, you rent an apartment in Texas but maintain a home in another state where your family lives), that other state may claim you as a resident and tax your income.
Residency disputes are rare but can happen if you move between states. If you think your residency status is unclear, document your move — lease, utility bills, driver's license, voter registration — in case a state questions where you lived.
Frequently Asked Questions
Do I have to file anything with Texas if I live there?
No. Texas has no state income tax return. You file only your federal return with the IRS. If you own a business subject to franchise tax, you file that separately, but there is no personal income tax return for Texas.
If I work for a Texas company but live in another state, do I owe Texas income tax?
No. You owe income tax to the state where you live and work, not to the state where your employer is located. If you live in California and work remotely for a Texas company, you owe California income tax, not Texas. Texas has no income tax to owe regardless.
Does Texas have local city or county income tax?
No. Neither cities nor counties in Texas collect income tax. The only income taxes you owe are federal and, if applicable, to another state where you lived or worked.
What if I moved to Texas and still have income from my old state — do I owe that state tax?
You owe tax to the state where you earned the income, not where you live now. If you earned income in California in January and moved to Texas in February, you owe California tax on the January income. You report it on your federal return and may claim a credit for taxes paid to California.
Is Texas income tax the same for everyone, or does it vary?
There is no Texas income tax for anyone. This applies equally to all residents, regardless of income level, age, or employment type. The only variation is in other taxes — sales tax and property tax rates vary by location within Texas.