Taxo Taxes in Texas: State Tax Guide 2026
Data Notice: Texas tax data in this guide uses projected 2026 figures derived from current law and IRS inflation indexing. Mid-year legislative changes may alter rates or brackets. Check with the Texas revenue department for the latest information. [taxes-texas-2026]
Taxes in Texas: State Tax Guide 2026
This article about taxes in texas: state tax guide 2026 provides general tax education and is not a substitute for professional tax advice. Laws and regulations discussed here may have changed since publication. Work with a licensed tax advisor for decisions affecting your specific tax situation.
Texas is one of nine states with no state income tax, making it a popular destination for high earners and businesses. However, Texas compensates through some of the highest property taxes in the nation and above-average sales tax rates. The full tax picture is more nuanced than “no income tax” suggests.
Texas Income Tax Rates (2026)
Texas has no state income tax. This applies to all types of income:
- Wages and salaries — Texas imposes no state income tax on earned income
- Self-employment income — Not subject to state income tax, though the Texas franchise tax may apply to business entities
- Investment income and capital gains — Not taxed at the state level, making Texas attractive for investors
- Retirement income — No state tax on pensions, 401(k) distributions, or IRA withdrawals
- Social Security benefits — Not taxed by Texas
The Texas Constitution prohibits a state income tax unless approved by voters.
Texas Franchise Tax (Businesses)
While individuals pay no income tax, businesses in Texas may owe the franchise tax (also called the “margin tax”):
| Business Type | Rate |
|---|---|
| Retail and wholesale | 0.375% of taxable margin |
| All other businesses | 0.75% of taxable margin |
| Businesses under ~$2.47M revenue | No tax owed |
| E-Z computation rate | 0.331% of revenue up to ~$20M |
Sole proprietorships and general partnerships composed entirely of natural persons are generally exempt from the Texas franchise tax, though they must still file a No Tax Due report if they have Texas nexus.
Sales Tax
| Component | Rate |
|---|---|
| State base rate | 6.25% |
| Maximum combined (state + local) | 8.25% |
| Average combined rate | 8.20% |
Most Texas cities and counties add the maximum local tax, bringing the total to 8.25% in most metro areas.
Exempt from sales tax: Most groceries, prescription and OTC medications, and items purchased during designated tax-free weekends (back-to-school, emergency preparedness).
Property Tax
| Metric | Amount |
|---|---|
| Average effective rate | 1.60% |
| National average | 0.99% |
| Rank among states | 6th highest |
Texas property taxes are among the highest in the nation. This is the primary way the state funds public services, especially schools.
Example: A home valued at $350,000 pays approximately $5,600 per year in property taxes. The same home in a state with the national average rate would pay approximately $3,465.
Property Tax Relief
- Homestead exemption: $100,000 off appraised value for school district taxes (increased from $40,000 in 2023)
- Over-65 exemption: Additional ~$10,000 plus a school tax freeze
- Disabled veteran exemption: Varies based on disability rating (100% disabled = full exemption)
- Property tax protest: Texas allows annual value protests, and many homeowners successfully reduce assessments
How Texas Compares to National Averages
| Tax Type | Texas | National Average |
|---|---|---|
| Top income tax rate | 0.00% | ~5.0% |
| Effective income tax (~$75K) | 0.0% | ~3.5% |
| Sales tax (combined avg) | 8.20% | 6.6% |
| Property tax (effective) | 1.60% | 0.99% |
| Overall tax burden rank | Below average | — |
Who Benefits from Living in Texas
Texas may work well for:
- High earners — No income tax means significant savings, especially above $200K
- Retirees on fixed income — No tax on pensions, Social Security, or investment income
- Renters — Property tax is the landlord’s burden (though it affects rent)
- Business owners — No personal income tax and a generous franchise tax threshold
- Remote workers earning income from other states (though sourcing rules may apply)
- Oil and gas workers — High salaries with no state income tax
Texas may be costly for:
- Homeowners with expensive properties — $500K+ homes face $8,000+ in annual property taxes
- Families who rely on public services — Lower per-capita spending on some services
- Frequent shoppers — 8.25% sales tax on most purchases adds up
- Lower-income renters — Sales and excise taxes are regressive (take a larger share of income)
Total Tax Burden Analysis
The no-income-tax advantage varies by situation:
| Scenario | Texas Total Tax | California Total Tax | Difference |
|---|---|---|---|
| ~$75K salary, ~$300K home, renter | ~$3,500 (sales) | ~$8,100 (income + sales) | Texas saves ~$4,600 |
| ~$75K salary, ~$300K home, owner | ~$8,300 (property + sales) | ~$10,200 (income + property + sales) | Texas saves ~$1,900 |
| ~$200K salary, ~$500K home, owner | ~$14,400 (property + sales) | ~$21,200 (income + property + sales) | Texas saves ~$6,800 |
| ~$50K salary, ~$200K home, owner | ~$6,500 (property + sales) | ~$5,800 (income + property + sales) | California saves ~$700 |
The takeaway: Texas is most beneficial for high earners and renters. For middle-income homeowners, the property tax can offset much or all of the income tax savings.
Texas-Specific Considerations
- No state estate or inheritance tax
- Community property state — Affects married couples’ asset treatment
- Homestead protection — Strong legal protections against creditors for your primary residence
- No personal state tax return required — Simplifies filing (you still file federal)
- Sales tax holidays — Annual events for back-to-school, emergency supplies, and energy-efficient products
Key Takeaways
- Texas has no state income tax on any type of income — wages, investments, retirement, or Social Security
- Property taxes average 1.60%, well above the national average, and are the primary offsetting factor
- Sales tax averages 8.20% with most metro areas at the 8.25% cap
- High earners and renters benefit most from the Texas tax structure
- Middle-income homeowners may find the property tax offsets much of the income tax savings
- The franchise tax applies to businesses above the ~$2.47M revenue threshold
Next Steps
- Compare Texas to other states at State Income Tax Comparison: All 50 States Ranked
- Calculate your federal taxes with the Tax Bracket Calculator 2026
- Explore available deductions — Tax Deductions You’re Probably Missing (Itemized vs Standard)
- Self-employed in Texas? See Self-Employment Tax Guide: Everything Freelancers Need to Know
- Find a Texas CPA — Find a CPA Near You
Sources
- Texas Comptroller of Public Accounts — official source for Texas sales tax, property tax, and franchise tax information.
- Tax Foundation, 2026 State Income Tax Rates and Brackets — confirms Texas as one of nine states with no individual income tax.
About This Article
Researched and written by the Taxo editorial team using official sources. This article is for informational purposes only and does not constitute professional advice.
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