Introduction
Texas is one of the few U.S. states that does not have a personal income tax. This means that while the federal government taxes income progressively through defined federal tax brackets, Texas residents do not pay any state income tax at all.
However, Texans are still subject to other state-level taxes such as sales tax, franchise tax, and property tax.
This article explains the difference between Texas tax brackets and federal tax brackets, helping you understand how your overall tax liability is determined in 2025.
Step 1: Understanding Federal Tax Brackets
Federal income tax is calculated using a progressive tax system, meaning your income is divided into portions that are taxed at increasing rates as your earnings rise.
For the 2025 tax year, the federal income tax brackets (for individuals) are expected to remain close to the 2024 levels, adjusted slightly for inflation:
| Filing Status | Tax Rate | Taxable Income Range (Approx.) |
|---|---|---|
| Single | 10% | Up to $11,600 |
| Single | 12% | $11,601 – $47,150 |
| Single | 22% | $47,151 – $100,525 |
| Single | 24% | $100,526 – $191,950 |
| Single | 32% | $191,951 – $243,725 |
| Single | 35% | $243,726 – $609,350 |
| Single | 37% | Over $609,350 |
Example:
A Texas resident earning $85,000 in 2025 will fall primarily within the 22% federal bracket but will not owe any state income tax. Their effective federal tax rate after deductions and credits will likely be around 15–17%.
Step 2: Texas Has No State Income Tax
Texas does not impose any individual or corporate state income tax on personal earnings.
Instead, the state funds public services primarily through sales tax, franchise tax, and property tax revenues.
Key facts for 2025:
- Texas state income tax rate: 0%
- Federal income tax rates: 10% to 37%, depending on income
- State sales tax rate: 6.25% (cities and counties may add up to 2%)
Because there are no Texas tax brackets, residents only calculate income tax under the federal system.
Step 3: Other Major Taxes Affecting Texas Residents
- Sales and Use Tax
- Base rate of 6.25%, with local jurisdictions adding up to 2%, making a total potential rate of 8.25%.
- Applies to most retail sales, leases, and taxable services.
- Property Tax
- Based on local appraisal values and tax rates set by counties, cities, and school districts.
- No standard rate statewide, but average effective property tax rate is about 1.6%.
- Franchise Tax (Business Tax)
- Applies to entities doing business in Texas with annual revenue above a certain threshold.
- This is not an income tax on individuals but a margin-based tax on business receipts.
Step 4: Federal vs. Texas Tax Filing Requirements
| Aspect | Federal (IRS) | Texas |
|---|---|---|
| Tax on Wages | Yes | No |
| Income Tax Return Required | Yes (Form 1040) | No |
| Sales Tax | No | Yes |
| Property Tax | No | Yes |
| Filing Deadline | April 15, 2025 | N/A (no state filing) |
Texas residents only need to file a federal tax return with the IRS each year. There are no state income tax forms or state-level filing obligations for individual taxpayers.
Step 5: How the Difference Benefits Texans
The absence of state income tax can provide substantial annual savings.
For example, a person earning $100,000 annually in Texas saves between $4,000 and $6,000 compared to residents in states that charge income tax.
However, Texans may pay more in property and sales taxes, which partially offsets these savings. Still, overall, most taxpayers find Texas more favorable for net disposable income.
Example:
A family in Dallas with a $100,000 income and $400,000 home may save about $5,000 in state income taxes but pay around $6,400 in property taxes annually. Even with higher property taxes, many families prefer Texas due to the flexibility of having no state withholding.
Step 6: Tax Planning Tips for Texas Residents
- Focus on Federal Deductions
Since there is no Texas income tax, maximize your federal itemized deductions for mortgage interest, property taxes, and charitable contributions. - Track Local Property Taxes
Use available homestead exemptions and senior freezes to lower taxable property values. - Leverage Tax-Free Retirement Income
Retirees in Texas enjoy no state tax on Social Security or pensions, unlike in many other states. - Consider Business Structuring
If you operate a business, structure it to minimize franchise tax exposure while complying with federal reporting rules.
Conclusion
The difference between Texas tax brackets and federal tax brackets lies in simplicity. Texans pay no state income tax, focusing only on federal tax obligations under IRS rules.
By understanding federal rates and optimizing deductions, residents can achieve maximum savings while enjoying the benefits of a state with no income tax.
Call to Action
For professional guidance on federal tax planning and Texas-specific compliance, contact Anshul Goyal, CPA EA FCA, a U.S.-licensed Certified Public Accountant, Enrolled Agent admitted to practice before the IRS, and cross-border tax expert assisting Texas residents and businesses in maximizing tax efficiency.
Disclaimer
This article is intended for informational purposes only and should not be considered legal or tax advice. Always consult a qualified CPA before making tax or financial decisions.
Top 5 FAQs
- Does Texas have income tax brackets?
No. Texas does not tax individual income, so there are no state income tax brackets. - What are the federal income tax brackets for 2025?
Federal tax rates range from 10% to 37% depending on your taxable income and filing status. - Do Texans still need to file state income tax returns?
No. Only federal tax returns are required. - How does Texas make up for not having income tax?
The state collects revenue primarily from sales, property, and franchise taxes. - Can living in Texas reduce my overall tax bill?
Yes. Texans save thousands annually due to the absence of a state income tax, though property and sales taxes remain relevant.
About Our CPA
Anshul Goyal, CPA EA FCA is a Certified Public Accountant licensed in the United States, Enrolled Agent authorized to practice before the IRS, and cross-border tax expert assisting Texas residents and U.S. businesses with federal and state-level compliance and tax planning.