Texas Has No State Income Tax
Texas has no state personal income tax. That means individuals who live and earn income in Texas do not pay a state tax on wages, salaries, retirement distributions or investment income. This feature makes Texas unique among states and carries benefits and trade-offs for residents.
Legal Basis: Why Texas Doesn’t Tax Personal Income
- The Texas Constitution and Texas statutes prohibit levying a state personal income tax.
- According to the Tax Foundation, Texas “does not have an individual income tax.”
- The constitution has been amended to block creation of a personal income tax for individuals.
Key Benefits for Texas Residents
- No tax on wages or salaries at the state level
Since there is no state income tax, your take-home pay is not reduced by a Texas state tax.
Example: If you earn $80,000 in Texas in 2025, you pay no state income tax on that amount. - No state tax on retirement, investment or pension income
AARP notes that in Texas “you won’t pay any state taxes on income… even if it’s earned from investments or a retirement plan.”
That helps retirees and those with passive income. - Competitive attraction for individuals and businesses
Studies show states without income taxes tend to grow faster. Texas benefits from this dynamic. - Simpler individual tax planning
With no state income tax, the filing burden can be simpler for residents.
What That Means for You: Practical Example
Imagine you move to Texas in 2025, earning $120,000 and receiving $20,000 in retirement distributions.
- In Texas you pay $0 state income tax on those amounts.
- Compare to a state with, say, a 5 % income tax rate, where you’d pay ~$6,000 on $120,000 plus tax on the $20,000 retirement distributions.
The absence of state income tax leaves you with more after-tax income.
Trade-Offs and Things to Consider
- Texas still needs to raise revenue, so it relies more heavily on other taxes (sales, property, excise).
- Property tax rates and sales tax burdens may be higher than some other states.
- While your income isn’t taxed at the state level, location and lifestyle costs still matter for total tax and cost-of-living comparisons.
How to Leverage the Benefit
- If you live in Texas, focus on maximizing take-home income since no state income tax is deducted.
- For high-income earners or retirees, the absence of tax on retirement distributions is a key planning advantage.
- Consider living in Texas if you value a tax structure that doesn’t reduce income via state tax on earnings.
- But also plan for other taxes: property tax relief, sales tax planning, and local tax implications.
Conclusion
Texas’s lack of a state personal income tax gives residents real benefits: more of your earnings stay in your pocket, retirement and investment income are free from state tax, and tax planning becomes more straightforward. At the same time, you should remain aware of how other taxes fill the revenue gap. If you live in Texas or are thinking of relocating, this tax feature is a major factor in your financial picture.
Call to Action
For detailed guidance on how living in Texas affects your tax situation including federal filings, property tax planning and other state-level considerations please contact Anshul Goyal, CPA EA FCA, a U.S.-licensed Certified Public Accountant and Enrolled Agent admitted to practice before the IRS, who supports both U.S. residents and Indian nationals in accordance with U.S. and Texas tax rules.
Disclaimer
This article is for informational purposes only and should not be considered tax or legal advice. Please consult a qualified tax professional regarding your personal situation.
Top 5 FAQs
- Does Texas have a personal income tax?
No. Texas does not impose a state income tax on individuals. - Is retirement income taxed in Texas?
No. Pension distributions, retirement plans and investment income are not taxed by Texas. - Can Texas impose a state income tax in the future?
While possible via constitutional change, Texas currently prohibits a personal income tax. - Are there trade-offs to having no state income tax?
Yes. Texas relies more on sales tax, property tax and other revenue sources, which may increase the burden elsewhere. - How does this benefit someone moving from another state?
If you relocate to Texas, you eliminate the state income tax you paid in your prior state, increasing your net income and potentially improving your financial position.
About Our CPA
Anshul Goyal, CPA EA FCA is a Certified Public Accountant licensed in the United States, an Enrolled Agent admitted to practice before the IRS, and a cross-border tax expert helping American businesses and individuals including Indians living in the U.S. to comply with U.S. federal and state tax laws and optimize their tax position.