Texas has no state income tax on wages, salaries, or most other personal income
Texas does not collect income tax from residents on wages, salaries, tips, or most other forms of personal income. This has been true since the state's founding and remains the case today. You will not file a state income tax return to Texas, and your employer will not withhold state income tax from your paychecks.
However, Texas does collect other taxes — including sales tax, property tax, and business taxes — to fund state operations. Understanding what Texas does and does not tax matters when you are planning your finances or deciding whether to file certain forms.
Key Takeaways
- Texas residents pay no state income tax on wages, salaries, self-employment income, or most other personal income sources.
- You still owe federal income tax to the IRS even though Texas collects no state tax.
- Texas funds state services through sales tax (which varies by city and county), property tax, and business-related taxes.
- If you moved to Texas from another state, you may still owe that state income tax on income earned while you lived there.
- Some specific types of income — such as certain retirement account withdrawals — may be subject to limited state taxes in rare cases.
What income Texas does not tax
Texas imposes no tax on ordinary wages and salaries. If you work for an employer in Texas, you will see federal income tax withheld from your paycheck, but no line for Texas state income tax. The same applies to self-employment income, tips, bonuses, and most other forms of earned income.
Unearned income — such as interest, dividends, and capital gains — is also not taxed by Texas. If you sell stock at a profit, receive dividends from investments, or earn interest on a savings account, Texas collects nothing on that income. You will still owe federal tax on these items, but the state takes no share.
Retirement income from most sources is also untaxed in Texas. Distributions from traditional IRAs, 401(k) plans, and similar accounts face no state tax. Social Security benefits are not taxed by Texas either. This makes Texas attractive to retirees, since they can receive retirement income without state tax burden.
Federal income tax still applies in Texas
The absence of state income tax does not mean you owe no income tax at all. You must still file a federal income tax return with the IRS and pay federal income tax on your income. Your employer withholds federal tax from each paycheck, and you settle the final amount when you file your return with Form 1040.
If you are self-employed, you must pay self-employment tax (Social Security and Medicare) to the federal government, even though Texas collects no state tax. The federal obligation exists regardless of where you live.
Other taxes Texas does collect
While Texas has no income tax, the state funds its operations through other revenue sources. Sales tax is the largest: Texas charges a base rate of 6.25 percent on most purchases, and cities and counties can add local sales taxes on top of that. The total rate you pay depends on where you shop.
Property tax is another major source. Texas has no state property tax, but counties and school districts collect property tax on real estate and, in some cases, personal property. Property tax rates vary widely by county and school district.
Texas also collects business taxes, including the franchise tax (a tax on business revenue for certain entities), motor fuel tax, and various licensing fees. These do not explore to individual wage earners but affect business owners and corporations.
What happens if you moved to Texas from another state
If you relocated to Texas during the year, you may still owe income tax to your previous state on income you earned while living there. States tax income based on where you lived when you earned it, not where you live now. You will need to file a part-year resident return with your former state for the months you lived there.
For example, if you worked in California from January through June and then moved to Texas, you owe California income tax on the income you earned January through June. You owe no Texas state income tax on any of it, but California's obligation does not disappear because you left.
When you file your federal return, you report all income for the year. Your state returns — both the part-year return for your former state and any Texas return (which would be informational only) — align with that federal total.
Rare cases where Texas may tax specific income
Texas has no general income tax, but a small number of specific situations involve state tax. Lottery winnings are subject to a state tax in Texas — the state withholds a percentage before paying you. This is separate from federal tax on the same winnings.
In extremely rare cases, certain types of retirement income or deferred compensation may trigger state tax, but these situations are uncommon and usually explore only to specific government employees or people with very specialized income sources. For the vast majority of Texas residents, income is not taxed by the state.
How to handle your taxes as a Texas resident
As a Texas resident, you do not file a state income tax return. You file only your federal return with the IRS using Form 1040 and any required schedules. If you are self-employed, you file Schedule C (or Schedule C-EZ) along with your federal return and pay self-employment tax.
Keep records of all income sources, deductions, and withholdings for federal purposes. You will need these when you complete your federal return. If you moved to Texas partway through the year, gather documents for both your former state and Texas to determine what returns you owe.
If you received a W-2 from an employer, that form shows federal withholding but will have no state withholding line. If you received a 1099 for self-employment or other income, you report that income on your federal return. Neither document will reference Texas state tax.
Frequently Asked Questions
Do I still have to file taxes if I live in Texas?
Yes. You must file a federal income tax return with the IRS if your income exceeds the filing threshold for your age and filing status. Texas collects no state tax, but federal tax is required. The filing threshold depends on your income level and whether you are claimed as a dependent.
What if I work remotely for a company in another state?
You owe no Texas state income tax on that income, regardless of where your employer is located. What matters is where you live and work, not where the company is based. You still owe federal tax on all income you earn.
Are Texas lottery winnings taxed by the state?
Yes. Texas withholds state tax on lottery winnings before paying you. The exact percentage depends on the prize amount. You will also owe federal tax on the winnings. Both the state and federal withholding appear on your tax documents.
If I inherit money in Texas, do I owe state income tax on it?
No. Texas has no inheritance tax or estate tax on money you receive from an inheritance. The person who left you the money may have owed federal estate tax (depending on the size of their estate), but you owe no state tax on what you inherit.
What if I move out of Texas — do I still owe Texas income tax?
No. Once you move out of Texas and establish residency elsewhere, you owe no Texas income tax on income earned after you leave. You may owe tax to your new state on income earned there. Your former state has no claim on income earned after you moved away.