Texas has no state income tax. The Texas Constitution flatly prohibits the legislature from taxing individual income, so wages, salaries, tips, retirement distributions, investment gains, and self-employment earnings all go untaxed at the state level. Texas funds its government through sales tax, local property tax, and a franchise tax on businesses instead.
What the Ban Actually Covers
Article 8, Section 24-a of the Texas Constitution prohibits any tax on the net income of individuals, including an individual’s share of partnership and unincorporated association income.1State of Texas. The Texas Constitution Article 8 – Taxation and Revenue Voters made this an outright ban on November 5, 2019, by approving Proposition 4. Undoing it would take a two-thirds vote in both chambers of the legislature to place a repeal amendment on the ballot, followed by approval in a statewide referendum.
Because the prohibition is total, Texas does not tax Social Security benefits, pension payments, 401(k) distributions, IRA withdrawals, or annuity income. Retirees moving from a state that does tax retirement income often see an immediate bump in take-home pay.
Investment income is also free from state tax. In November 2025 voters approved Proposition 2, which added a constitutional prohibition on any state tax on realized or unrealized capital gains for individuals, families, estates, and trusts. The ban covers gains on stocks, bonds, real estate, and personal vehicles.
Federal Taxes Still Apply
Living in Texas does not exempt you from federal income tax. You still file an annual return with the IRS if your gross income meets the filing threshold for your status — $15,750 for a single filer under 65 or $31,500 for a married couple filing jointly and both under 65.2Internal Revenue Service. Check if You Need to File a Tax Return The federal filing deadline is April 15.3Internal Revenue Service. Individual Tax Filing
Federal payroll taxes come out of every Texas paycheck the same way they do elsewhere: 6.2 percent for Social Security and 1.45 percent for Medicare. If you’re self-employed, you pay both halves, for a combined 15.3 percent on net self-employment income. A portion of Social Security benefits may also be federally taxable depending on your total income.
Sales Tax
Sales tax is where Texas makes up much of what it forgoes on income. The state charges 6.25 percent on most retail purchases of goods and taxable services. Cities, counties, transit authorities, and special purpose districts can add up to 2 percent more, capping the combined rate at 8.25 percent.4Texas Comptroller of Public Accounts. Sales and Use Tax
Several everyday categories are exempt:
- Most groceries, including bread, milk, eggs, produce, meat, poultry, fish, dairy, grains, and pasta.
- Over-the-counter drugs labeled with an FDA Drug Facts panel, and dietary supplements.
- Baby food, formula, bottles, diapers, and wipes.
- Feminine hygiene products, adult diapers, adhesive bandages, gauze, and other wound care items.
Prepared meals, alcohol, soft drinks, candy, and non-food retail items are taxed at the full combined rate.5Texas Comptroller of Public Accounts. Grocery and Convenience Stores
Property Tax
Texas has no state property tax. Every property tax bill is levied by local taxing units — school districts, cities, counties, and special districts — to pay for schools, roads, police, fire, and other local services.6Texas Comptroller of Public Accounts. Property Tax System Basics More than 4,700 local units set their own rates. Effective rates generally run from about 0.85 percent to 1.80 percent of a property’s market value, depending on the county.
Appraisal districts set the market value of each property as of January 1. Your bill is based on that appraised value minus any exemptions you qualify for.
Homestead Exemptions
If you own and occupy your primary residence in Texas as of January 1, you qualify for a residence homestead exemption that reduces your taxable value for school district purposes by $100,000. You have to be an individual (not a business entity) and file an application with your local appraisal district by April 30.
Homeowners age 65 or older receive an additional $60,000 school district exemption on top of the general homestead exemption.7Texas Comptroller of Public Accounts. Property Tax Exemptions Cities and counties may offer their own optional homestead exemptions, so the total reduction depends on where you live.
Franchise Tax for Business Owners
The franchise tax applies to business entities, not individuals, but if you own an LLC, corporation, or partnership you’ll deal with it. The rate depends on the type of business:
- Retail or wholesale businesses: 0.375 percent of taxable margin.
- All other entities: 0.75 percent of taxable margin.
- EZ computation: 0.331 percent of total revenue, available to entities with total revenue of $20 million or less.
These rates apply for report years 2026 and 2027.8State Automated Tax Research for the State of Texas. Franchise Tax
For the 2026 report year, entities with annualized total revenue of $2,650,000 or less owe no franchise tax.9Texas Comptroller of Public Accounts. 2026 Franchise Tax Instructions Those entities don’t file a franchise tax report, but they still have to file an annual Public Information Report or Ownership Information Report with the Comptroller.10Texas Comptroller of Public Accounts. Requirements for Reporting and Paying Franchise Tax
Other Taxes You’ll Run Into
- Motor vehicle sales tax: 6.25 percent of the purchase price, minus any trade-in allowance, when you buy a vehicle in Texas.11Texas Comptroller of Public Accounts. Motor Vehicle – Sales and Use Tax
- New resident vehicle tax: a flat $90 fee when you bring a vehicle already registered in your name from another state, charged in place of the standard use tax.
- Hotel occupancy tax: 6 percent of the room cost at the state level, with cities and counties often adding a local hotel tax on top.12Texas Comptroller of Public Accounts. Hotel Occupancy Tax
If You’re Moving to Texas or Working Remotely
Move to Texas partway through the year and you owe Texas no income tax for any part of it. You may still need to file a part-year resident return in the state you left, reporting income earned there before your move. Each state has its own rules for when residency ends, so check with the state you’re leaving.
Remote work is trickier. Some states tax income earned by out-of-state remote workers whose employers are based within their borders; others only tax people physically present in the state. Because Texas has no income tax, you get no reciprocal tax credit to offset what another state might charge you. A Texas resident working remotely for an employer in a state that claims taxing authority over remote workers can end up owing that state’s income tax. Review the sourcing rules of your employer’s state before assuming your paycheck is untaxed.