Texas has no state income tax on wages, salaries, or most other personal income

Texas is one of nine states that does not collect a state income tax on what you earn from a job or most other sources. This means if you live and work in Texas, you will not owe state income tax on your W-2 wages, 1099 contractor income, or most business profits. You still owe federal income tax to the IRS — that does not change — but you skip the state layer entirely.

This applies whether you are a Texas resident or a nonresident who works in Texas. If you live in another state but earn money in Texas, you generally do not owe Texas income tax on that income either. The state funds itself through sales tax, property tax, and business taxes instead.

Key Takeaways

  • Texas collects no state income tax on wages, salaries, self-employment income, or investment gains, so you will not file a state income tax return.
  • You still owe federal income tax on all income — the absence of state tax does not reduce what you owe the IRS.
  • Texas residents who work out of state may still owe income tax to the state where they work, depending on that state's rules.
  • Texas does tax certain business entities and has a franchise tax on some corporations and partnerships, which is separate from income tax.

What income is not taxed in Texas

Texas does not tax wages from a job, tips, bonuses, or overtime pay. It does not tax self-employment income if you run a sole proprietorship or partnership. It does not tax capital gains from selling stocks, real estate, or other investments. It does not tax interest from savings accounts or bonds, dividends from stocks, or rental income from property you own.

This broad exemption means that on your federal Form 1040, you will report all this income to the IRS, but you will not file a corresponding state return to Texas. You will not see a state income tax withholding on your paystub, and your employer will not send you a state W-2 form.

Federal income tax still applies in Texas

The fact that Texas has no state income tax does not reduce your federal tax burden. You must still file a federal return with the IRS if your income exceeds the filing threshold for your age and filing status. For 2024, a single person under 65 must file if their income is $14,600 or more; a married couple filing jointly must file if their combined income is $29,200 or more. These thresholds change each year.

Your federal tax rate, deductions, and credits work the same way whether you live in Texas or any other state. The only difference is that you have one less state return to prepare. You will still owe federal self-employment tax if you are self-employed, and you will still need to make estimated tax payments to the IRS if you do not have withholding.

What happens if you work in another state

If you live in Texas but work in a state that has income tax — such as New York, California, or Illinois — you will owe income tax to that state on the income you earn there. You will file a return in the state where you work and pay tax at that state's rate. Texas will not tax you on that income, but the other state will.

Some states offer a credit for taxes paid to another state, which can reduce your federal tax bill. You should check the rules of the state where you work to understand your filing obligations there. If you move between states during the year, you may need to file part-year resident returns in both states.

Texas franchise tax on businesses

While Texas has no income tax, it does have a franchise tax that applies to certain businesses. This is not an income tax — it is a separate tax based on revenue or profit margins, and it applies only to businesses that meet certain thresholds. Most sole proprietors and small partnerships do not owe this tax. Corporations, limited liability companies (LLCs), and some partnerships may owe it if their revenue exceeds the filing threshold, which varies by business structure.

If you are self-employed as a sole proprietor, you do not owe Texas franchise tax. If you have formed an LLC or corporation, you should check with the Texas Comptroller of Public Accounts to determine whether your business structure and revenue level trigger a filing requirement. This is separate from your federal income tax return.

How to file taxes as a Texas resident

Because Texas has no state income tax, your filing process is simpler than in states that do. You will prepare and file your federal Form 1040 with the IRS. You will not prepare a state income tax return. If you are self-employed, you will still file Schedule C (Profit or Loss from Business) and Schedule SE (Self-Employment Tax) with your federal return to report your business income and calculate self-employment tax.

If you have income from multiple sources — wages, self-employment, investments, rental property — you will report all of it on your federal return. You may also need to file state returns in other states if you earned income there or if you moved during the year. But for income earned in Texas while living in Texas, you file only the federal return.

Why Texas has no income tax

Texas has not had a state income tax since before it became a state in 1845. The state constitution has historically prohibited it, and voters have repeatedly rejected proposals to introduce one. Instead, Texas funds state government through a sales tax (which varies by county but is at least 8.25 percent), property taxes, and business-related taxes including the franchise tax mentioned above.

This structure means Texas residents pay no state income tax but may pay higher sales and property taxes than residents of states with income tax. Whether this is advantageous depends on your individual situation — someone with high income and low property value may benefit more than someone with modest income and an expensive home.

Frequently Asked Questions

Do I have to file a Texas state income tax return?

No. Texas does not have a state income tax, so you will not file a state return. You will file only your federal Form 1040 with the IRS if your income meets the federal filing threshold.

If I move to Texas from another state, do I owe back taxes to Texas?

No. Texas does not tax income retroactively. Once you move to Texas, you owe no state income tax on future income. You may owe taxes to your previous state for income earned there before you moved, depending on that state's rules.

Does Texas tax retirement income or Social Security?

No. Texas does not tax Social Security benefits, pensions, 401(k) withdrawals, or IRA distributions. These are all exempt from state income tax. You will report them on your federal return, but Texas will not tax them.

What if I am self-employed — do I still owe nothing to Texas?

You owe no Texas state income tax on your self-employment income. You will file Schedule C and Schedule SE with your federal return to report your business income and pay federal self-employment tax. You may owe Texas franchise tax if your business structure and revenue meet the threshold.

Can I deduct Texas property tax on my federal return?

Yes, but only up to $10,000 per year in total state and local taxes (SALT). This includes property tax, sales tax, and any other state and local taxes combined. You can deduct the amount you actually paid, up to the $10,000 limit, on Schedule A of your federal return if you itemize deductions.