Texas Tax Social Security
If you are retired and living in Texas, you benefit from one of the most favorable tax environments in the United States.
Texas does not tax Social Security benefits, pension income, or other retirement distributions at the state level.
This makes it a top destination for retirees seeking to preserve more of their retirement savings.
This guide explains how Texas retirement income tax rules work, what income is exempt, and what federal taxes may still apply in 2025.
Step 1: No State Tax on Retirement Income
Texas does not have a personal income tax, which means:
- Social Security benefits are not taxed by the state.
- Pension payments, 401(k), IRA, and annuity withdrawals are also free from state income tax.
- Investment earnings such as dividends and capital gains are not subject to state-level taxation.
Example:
A retiree in San Antonio receiving $45,000 from a pension and $20,000 from Social Security will pay zero state income tax on these amounts.
Only federal tax laws apply to their income.
Step 2: Federal Tax Rules Still Apply
Even though Texas does not impose its own tax, the IRS may tax part of your Social Security or pension income depending on your total combined income.
For federal purposes:
- Up to 85% of Social Security benefits may be taxable if your income exceeds IRS thresholds.
- Pension payments, 401(k) distributions, and traditional IRA withdrawals are generally fully taxable at the federal level.
- Roth IRA distributions are tax-free if qualified.
Example:
If your total income (pension, investments, and 50% of Social Security) exceeds $44,000 for a married couple filing jointly, a portion of your Social Security benefits may be taxed federally.
Step 3: Common Types of Retirement Income in Texas
- Social Security Benefits
- Exempt from Texas state tax.
- May be partially taxable at the federal level based on income.
- Employer Pensions and Annuities
- Exempt from Texas state tax.
- Fully taxable federally unless contributions were previously taxed.
- 401(k) and Traditional IRA Distributions
- Exempt from Texas state tax.
- Taxable federally as ordinary income upon withdrawal.
- Roth IRA Distributions
- Exempt from Texas state tax.
- Federally tax-free if held for at least five years and withdrawn after age 59½.
- Investment Income
- No Texas tax on dividends, capital gains, or interest.
- Subject to federal taxation depending on the type of investment.
Step 4: Property and Sales Taxes Still Apply
While Texas retirees save on income taxes, they should plan for other state and local taxes:
- Property Tax: Texas has one of the higher average property tax rates nationally. Seniors may qualify for homestead exemptions and senior property tax freezes to reduce their annual bills.
- Sales Tax: The combined state and local sales tax rate can be as high as 8.25%, which applies to most goods and some services.
Proper planning can help retirees manage these indirect taxes while still benefiting from zero income tax.
Step 5: Estate and Inheritance Taxes
Texas does not have an estate tax or inheritance tax.
Only the federal estate tax applies if your total estate value exceeds the federal exemption threshold (which is over $13 million for 2025).
This makes Texas an attractive state for retirees with significant assets or estates.
Step 6: Retirement Tax Planning Tips for Texans
- Optimize Withdrawals:
Time your withdrawals from 401(k)s and IRAs to remain in lower federal brackets. - Consider Roth Conversions:
Converting traditional IRA funds to a Roth IRA during lower-income years can reduce long-term federal tax exposure. - Leverage Property Tax Relief:
Apply for homestead exemptions and senior valuation freezes to minimize property taxes. - Track Federal Estimated Payments:
Retirees without withholding on pensions should make estimated federal tax payments quarterly to avoid penalties.
Conclusion
Texas offers one of the most tax-friendly environments for retirees.
With no tax on Social Security, pensions, or retirement withdrawals, residents keep more of their income compared to many other states.
Although federal taxes still apply, careful planning ensures retirees in Texas enjoy both financial efficiency and peace of mind.
Call to Action
For professional guidance on Texas retirement income tax and federal retirement planning, contact Anshul Goyal, CPA EA FCA, a U.S.-licensed Certified Public Accountant, Enrolled Agent authorized to practice before the IRS, and cross-border tax expert assisting American and Indian retirees with tax-efficient financial strategies.
Disclaimer
This article is for informational purposes only and does not constitute legal or tax advice. Always consult a qualified CPA before making retirement income or withdrawal decisions.
Top 5 FAQs
- Does Texas tax Social Security benefits?
No. Social Security benefits are not taxed in Texas. - Are pensions taxable in Texas?
No. Texas does not tax pension or retirement account distributions. - Are there any taxes retirees still pay in Texas?
Yes. Retirees still pay property and sales taxes, but no income tax. - Do federal taxes still apply to Texas retirees?
Yes. The IRS may tax Social Security and other retirement income based on your total income. - Does Texas have estate or inheritance tax?
No. Texas does not levy estate or inheritance taxes.
About Our CPA
Anshul Goyal, CPA EA FCA is a Certified Public Accountant licensed in the United States, Enrolled Agent admitted to practice before the IRS, and a cross-border tax expert helping retirees and individuals manage their U.S. tax compliance and optimize their retirement planning in Texas.
Meta Description