Income Tax in Texas: Complete Guide 2026
Data Notice: Figures, rates, and statistics cited in this article are based on the most recent available data at time of writing and may reflect projections or prior-year figures. Always verify current numbers with official sources before making financial, medical, or educational decisions.
Income Tax in Texas: Complete Guide 2026
Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.
Texas is one of nine states that does not impose a state income tax on individuals. The Texas Constitution was amended in 2019 to explicitly prohibit the state from levying a personal income tax, making it extremely unlikely that this will change in the future. While the absence of a state income tax is a major draw for workers, retirees, and businesses relocating to Texas, the state compensates through higher-than-average property taxes and sales taxes. Understanding the full tax picture is essential for evaluating whether Texas is truly a low-tax state for your situation.
Texas Income Tax Overview (2026)
| Tax Type | Rate |
|---|---|
| State individual income tax | ~0% (constitutionally prohibited) |
| State corporate income tax | ~0% (franchise tax applies instead) |
| Federal income tax | Standard federal rates apply |
What Texas Taxpayers Still Owe
Even without a state income tax, Texas residents are subject to:
| Tax | Approximate Rate/Amount |
|---|---|
| Federal income tax | ~10% to ~37% (graduated brackets) |
| Federal payroll taxes (FICA) | ~7.65% (employee share) |
| Texas franchise tax (businesses) | ~0.375% to ~0.75% of taxable margin |
| Property tax (avg. effective rate) | ~1.60% to ~2.20% |
| State sales tax | ~6.25% (+ up to ~2.00% local) |
How Texas Funds Government Without Income Tax
Property Taxes
Texas relies heavily on property taxes to fund public services, particularly schools. The average effective property tax rate in Texas is approximately ~1.60% to ~1.80%, well above the national average of ~0.99%. In some metropolitan areas and school districts, effective rates can exceed ~2.20%. A homeowner with a ~$350,000 home might pay ~$6,300 to ~$7,700 annually in property taxes.
Key property tax relief programs include:
- Homestead exemption: ~$100,000 exemption from school district taxes for primary residences
- Over-65 exemption: Additional ~$10,000 school district exemption plus a tax ceiling freeze
- Disabled veteran exemption: Partial to full exemption based on disability rating
Sales Tax
Texas imposes a state sales tax of ~6.25%, with local jurisdictions adding up to ~2.00% for a maximum combined rate of ~8.25%. Groceries (unprepared food) are exempt from sales tax, but most other goods and many services are taxable.
Franchise Tax
While Texas has no corporate income tax, it imposes a franchise tax (also called the margin tax) on businesses. Rates are ~0.375% for wholesalers and retailers and ~0.75% for other entities, applied to the lesser of total revenue minus cost of goods sold, total revenue minus compensation, ~70% of total revenue, or total revenue minus ~$1 million. Businesses with revenue under ~$2.47 million owe no franchise tax.
Texas vs. Income Tax States: Total Tax Burden
| State | Income Tax | Property Tax (Avg.) | Sales Tax (Max.) | Overall Rank |
|---|---|---|---|---|
| Texas | ~0% | ~1.60%—1.80% | ~8.25% | Middle of the pack |
| California | ~1%—13.30% | ~0.71% | ~10.25% | High overall |
| Florida | ~0% | ~0.80% | ~7.50% | Lower overall |
| New York | ~4%—10.90% | ~1.40% | ~8.875% | High overall |
| Tennessee | ~0% | ~0.56% | ~9.55% | Lower overall |
| Nevada | ~0% | ~0.53% | ~8.38% | Lower overall |
Texas’s total tax burden is moderate when all taxes are considered. While the absence of income tax benefits high earners significantly, high property taxes can offset the advantage for homeowners, particularly those with expensive homes.
Who Benefits Most from No State Income Tax
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High-income earners save the most in absolute dollars. A household earning ~$500,000 saves ~$25,000 or more annually compared to living in California.
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Retirees with significant pension and investment income benefit because there is no state tax on retirement distributions, Social Security, pensions, or capital gains at the state level.
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Remote workers employed by out-of-state companies often benefit from Texas residency, as Texas does not impose income tax on their earnings.
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Renters benefit more than homeowners because they avoid Texas’s high property taxes while enjoying the lack of income tax.
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Business owners benefit from no personal income tax on pass-through business income, though the franchise tax may apply to the business entity itself.
Tips for Maximizing Your Tax Advantage in Texas
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File for your homestead exemption immediately after purchasing a primary residence. The ~$100,000 school district exemption provides significant property tax savings.
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Protest your property tax appraisal annually. Texas allows homeowners to challenge assessed values, and many succeed in reducing their valuations.
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Maximize federal tax-advantaged accounts (Roth IRAs, Roth 401(k)s) since you are already in a no-income-tax state. Contributing to Roth accounts is especially advantageous because there is no state tax to save by using traditional pre-tax accounts.
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Take advantage of the over-65 property tax freeze if applicable. Once you turn 65, your school district taxes are frozen at that year’s level regardless of future property value increases.
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Structure business income carefully to minimize franchise tax exposure. The ~$2.47 million revenue exemption and cost of goods sold deduction can reduce or eliminate the tax.
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Be aware of tax obligations if you earn income in other states. Texas residency does not exempt you from other states’ income taxes on income earned within their borders.
Key Takeaways
- Texas constitutionally prohibits a state individual income tax, with a rate of ~0%
- The state compensates through higher property taxes (~1.60%—1.80% average) and sales taxes (~8.25% max)
- High-income earners and retirees benefit the most from the absence of state income tax
- The homestead exemption of ~$100,000 from school district taxes is a critical benefit for homeowners
- Texas’s franchise tax (~0.375%—0.75%) applies to businesses but not to individual income
- Total tax burden in Texas is moderate nationally when all taxes are considered
Next Steps
- Federal Income Tax Guide 2026 — Understand your federal tax obligations as a Texas resident
- State Income Tax Rates Comparison 2026 — See how Texas compares to income-tax states
- Tax Bracket Calculator — Calculate your federal tax liability
- Self-Employment Tax Guide — Learn about federal self-employment taxes and Texas franchise tax
- Find a CPA Near You — Connect with a Texas tax professional for property and business tax planning