Texas has no state income tax, but you still owe federal income tax
Texas does not collect state income tax on wages, salaries, or investment income. This is a real advantage if you live and work in Texas — you keep more of what you earn compared to residents of states with income tax. However, this does not change your federal income tax obligation. You must still file a federal return and pay federal tax to the IRS, regardless of where you live.
The absence of state income tax in Texas is permanent. It is written into the Texas Constitution, and the state funds itself through sales tax, property tax, and business taxes instead. This means you will never owe Texas state income tax, even if you work for a Texas employer or own a Texas business.
Key Takeaways
- Texas has no state income tax on any form of income, so you will not file a Texas state return or pay state income tax.
- Federal income tax is separate from state income tax and applies to all U.S. residents regardless of which state they live in.
- You must file a federal return with the IRS if your income exceeds the threshold for your filing status, even though Texas has no state tax.
- Moving to Texas does not reduce your federal tax burden, though it does eliminate state income tax you would owe in other states.
- Self-employed Texans still owe federal self-employment tax and federal income tax on business profits.
How federal tax works when you live in Texas
Federal income tax is collected by the IRS and goes to the U.S. government, not to Texas. Your federal tax rate depends on your income level and filing status, not on where you live. A Texas resident in the 22% federal bracket pays the same federal tax rate as someone in California or New York.
You file your federal return on Form 1040 with the IRS, typically by April 15 each year. If you are a W-2 employee, your employer withholds federal tax from each paycheck based on the W-4 form you complete. If you are self-employed or have investment income, you may need to make quarterly estimated tax payments to the IRS.
Who must file a federal return in Texas
You must file a federal return if your income exceeds the standard deduction for your filing status. The standard deduction changes each year and depends on whether you are single, married filing jointly, head of household, or another status. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly, but these amounts increase each year.
Even if your income is below the standard deduction, you may need to file if you are self-employed and have net earnings of $400 or more. You should also file if you had federal tax withheld from your paychecks, because you may be due a refund.
Federal tax brackets and rates explore the same way
Federal tax brackets are the same for all states. Your income is taxed at progressive rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%, depending on how much you earn. These rates do not change because you live in Texas.
The only tax advantage Texas offers is the absence of state income tax. You do not get a lower federal rate, a higher standard deduction, or any other federal benefit just for living there. The federal tax system treats Texas residents the same as residents of every other state.
Self-employed income and federal tax in Texas
If you are self-employed in Texas, you owe federal income tax on your net business income. You also owe federal self-employment tax, which covers Social Security and Medicare. Self-employment tax is 15.3% on 92.35% of your net earnings (12.4% for Social Security up to an annual cap, and 2.9% for Medicare with no cap).
You report self-employment income on Schedule C and calculate self-employment tax on Schedule SE. You file these with your federal Form 1040. Texas does not collect any state version of this tax, so you only deal with the federal forms.
Investment income and federal tax
Federal tax applies to investment income — capital gains, dividends, and interest — regardless of whether you live in Texas. Long-term capital gains (assets held over one year) are taxed at 0%, 15%, or 20% depending on your income. Short-term gains are taxed as ordinary income at your regular federal rate.
may have access to dividends are also taxed at the long-term capital gains rates. Interest income is taxed as ordinary income. Texas does not tax any of this, but the IRS does. You report investment income on Schedule B or Schedule D and include it with your federal return.
Moving to Texas and your federal tax situation
If you move to Texas from another state, your federal tax obligation does not change. You will no longer owe state income tax to your old state (once you establish Texas residency), but you will still owe the same federal tax you always did. The benefit of moving to Texas is the elimination of state income tax, not a reduction in federal tax.
Your old state may still claim you as a resident for part of the year you move, so you might file a part-year resident return there. The IRS will not care — you file one federal return regardless of how many states you lived in during the year.
Frequently Asked Questions
Do I have to file a federal return if I live in Texas?
Yes, if your income exceeds the standard deduction for your filing status. Texas has no state return to file, but the federal requirement applies to all U.S. residents. Even if you are below the threshold, you should file if you had federal tax withheld, because you may get a refund.
Does living in Texas mean I pay less federal tax?
No. Federal tax rates and brackets are the same for all states. Texas's advantage is the absence of state income tax, not a lower federal rate. You pay the same federal tax as someone earning the same income in any other state.
What if I work remotely for a company in another state?
You file a federal return based on your income, regardless of where your employer is located. If you are a Texas resident, you owe no Texas state tax. Your employer withholds federal tax based on your W-4, and you report the income on your federal return.
Do I owe federal self-employment tax if I'm self-employed in Texas?
Yes. Self-employment tax (15.3% on net earnings) is a federal obligation that applies everywhere. Texas does not collect a state version, so you only file federal forms. You calculate it on Schedule SE and include it with your Form 1040.
Can I deduct Texas property taxes on my federal return?
Yes, if you itemize deductions. The State and Local Tax (SALT) deduction allows you to deduct up to $10,000 in state and local taxes combined, including property tax. This is a federal deduction, not a Texas one, and it appears on your federal return.