Texas Income Tax: Does Texas Have One? The 2026 Guide

No. There is no state income tax in Texas: the state doesn't tax wages, retirement income or investment income, and a 2019 constitutional amendment bans one (Texas Constitution, Art. 8, Sec. 24-a). Texas is one of eight states that levy no individual income tax (Tax Foundation, 2026; Washington, often listed with them, taxes capital gains). Salaries, bonuses and Social Security benefits are untaxed by the state too. There is no state tax return to file, no brackets to worry about, and no withholding from your paycheck beyond federal taxes and FICA.

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But "no income tax" does not mean "no taxes." Texas funds its $338 billion biennial budget, the largest in state history, through a distinctive combination of sales taxes, property taxes, business franchise taxes, and energy revenues, all administered by the Texas Comptroller of Public Accounts. Understanding exactly what you will and won't pay is critical for anyone considering a move to Texas. This guide covers every tax that affects Texas residents, compares the state to alternatives, and gives you the real math on what your tax bill actually looks like.

Does Texas Have a State Income Tax?

No. Texas has never collected a personal state income tax in its history, and since 2019, the state constitution explicitly prohibits one. Article 8, Section 24-a of the Texas Constitution states plainly: "The legislature may not impose a tax on the net incomes of individuals, including an individual's share of partnership and unincorporated association income."

The constitutional ban started as a guardrail and evolved into a fortress. In 1993, the Bullock Amendment required voter approval before any income tax could take effect. In 2019, Proposition 4 replaced that with an outright ban, passing with overwhelming support. Since then, additional amendments have sealed off every conceivable workaround by banning wealth taxes, capital gains taxes, estate taxes, and taxes on securities transactions conducted by registered securities market operators.

Reversing the income tax ban would now require a two-thirds supermajority vote in both the Texas House (100 of 150 members) and Senate (21 of 31 members) to place a repeal amendment on the ballot, followed by majority voter approval in a statewide referendum. Given that the original ban passed with nearly 75% support, this is a virtually insurmountable political threshold. The 2025 regular session of the 89th Legislature produced no proposals to study, introduce, or consider a state income tax. All legislative energy on tax policy flowed in the opposite direction, toward expanding exemptions and constitutionally prohibiting new tax types.

Does Texas Have a Personal Income Tax?

No. The Texas income tax ban covers all forms of personal income without exception:

• Wages and salaries: zero state tax on your paycheck
• Self-employment income: no state tax on freelance or business income
• Investment income: no state tax on dividends, interest, or stock gains
• Retirement income: no state tax on Social Security, pensions, 401(k), or IRA distributions
• Capital gains: no state tax on realized or unrealized gains (constitutionally banned since 2025)
• Inheritance and gifts: no state estate, inheritance, or gift tax (constitutionally banned since 2025)

Texas is also a community property state, which means married couples typically split income 50/50 for federal tax purposes. This can create favorable federal tax treatment for dual-income households where one spouse earns significantly more than the other. You still file a federal tax return with the IRS as usual; there is simply no state equivalent.

What Taxes Does Texas Have?

While Texas has no personal income tax, the state still collects substantial revenue through other mechanisms. The 2026-27 biennial budget of $338 billion, the largest in state history, draws from several major streams. Understanding these taxes is essential for anyone asking "do Texas have state taxes?", because the answer is yes, Texas absolutely has state taxes. They are simply structured differently than most states.

The key taxes that Texas residents encounter in daily life include the sales tax on most purchases, property taxes on real estate (collected locally), motor vehicle sales tax when buying a car, and various registration fees. Businesses face the franchise tax, unemployment insurance (SUTA), and industry-specific taxes like oil and gas severance.

Does Texas Have a Sales Tax?

Yes, and the sales tax is by far the largest source of state funding. Texas imposes a 6.25% state sales tax on most retail purchases of tangible goods and many services. Local jurisdictions (cities, counties, transit authorities, and special districts) can add up to an additional 2%, bringing the maximum combined rate to 8.25%. Most major metro areas (Dallas, Houston, Austin, San Antonio) sit at or near the 8.25% maximum.

Important exemptions keep the sales tax from being as burdensome as the headline rate suggests:

• Groceries: unprepared food is fully exempt from sales tax
• Prescription medications: exempt from sales tax
• Over-the-counter medications: exempt from sales tax
• Baby items: diapers and baby wipes became exempt on September 1, 2023 (SB 379)

However, prepared food (restaurant meals, deli items), clothing, electronics, furniture, and most other retail purchases are fully taxable. Texas also holds annual sales tax holidays, typically in August for back-to-school items and April for emergency preparedness supplies, when certain categories are temporarily exempt.

Does Texas Have State Sales Tax? State vs. Local Breakdown

Yes, Texas has both a state-level sales tax and local sales taxes. The 6.25% state portion goes to Austin to fund state government operations. The local portion (up to 2%) stays in your community to fund city services, transit, and local infrastructure. Here is how the combined rates compare across major Texas metro areas:

Does Texas Have a Personal Property Tax?

Texas levies no state-level property tax; all property taxes are collected locally by cities, counties, school districts, and special districts. However, the combined local property tax burden is among the highest in the nation. WalletHub's 2026 effective property tax rate for Texas is 1.49%, tied for 7th highest among the states (WalletHub, February 2026, from Census data).

On that rate, the tax on a home at the Texas median value of $283,800 comes to about $4,232 a year, while the average U.S. household pays $3,119 (same WalletHub table). This is the primary trade-off for the zero income tax environment. On a $400,000 home in a typical DFW suburb, expect roughly $8,800 a year ($733 a month) at a ~2.2% combined rate before exemptions; the homestead exemption brings an owner-occupant's bill down from there.

Recent reforms have been aggressive in providing relief. In 2023, voters approved an $18 billion property tax cut that raised the homestead exemption from $40,000 to $100,000 and capped annual appraisal increases at 20% for non-homestead real property valued at $5 million or less (an indexed threshold), a limit that expires December 31, 2026 (Tax Code §23.231). In 2025, the homestead exemption rose again to $140,000, and senior/disabled exemptions jumped from $10,000 to $60,000. For a deeper dive into property tax rates, exemptions, and the protest process, see our Texas Property Tax Guide.

Does Texas Have a Capital Gains Tax?

No, and Texas has gone further than any other state to guarantee it stays that way. In 2025, voters approved Proposition 2 (Article 8, Section 24-b), which constitutionally bans any tax on realized or unrealized capital gains for individuals, families, estates, and trusts. This was a preemptive move after watching Washington State enact a capital gains tax despite lacking a traditional income tax.

The 2025 amendments also banned estate and inheritance taxes (Proposition 8), taxes on registered securities market operators and the securities transactions they conduct (Proposition 6), and any tax based on wealth or net worth (originally banned in 2023 via Proposition 3). Together with the 2019 income tax ban, Texas has built what amounts to a constitutional fortress around personal wealth, prohibiting five distinct categories of taxes that other states use to fund government.

Does Texas Have a Corporate Income Tax?

No. Texas has no traditional corporate income tax. Instead, the state levies the Texas Franchise Tax, a "privilege tax" for doing business in Texas. Unlike a corporate income tax based on net profit, the franchise tax is based on business margins (revenue minus certain deductions).

Key franchise tax details for 2026:

• Standard rate: 0.75% of taxable margin
• Retail/wholesale rate: 0.375% of taxable margin
• EZ computation: 0.331% of total revenue (for businesses under $20M)
• No-tax-due threshold: $2.65 million in annualized revenue; businesses below this owe zero
• Filing deadline: May 15 annually

The $2.65 million threshold effectively exempts most small businesses from the franchise tax entirely. For businesses that do owe the tax, the franchise tax generated $7.08 billion in FY 2025, a significant revenue source but far less per business than traditional corporate income taxes in states like California (8.84%) or New York (6.5%).

Does Texas Have Federal Income Tax?

Yes. Texas residents are still subject to all federal taxes. The state income tax ban applies only at the state level. You still pay:

• Federal income tax: progressive rates from 10% to 37% based on income
• FICA taxes: Social Security (6.2%) and Medicare (1.45%) on wages
• Federal capital gains tax: 0%, 15%, or 20% depending on income level
• Federal estate tax: applies to estates exceeding the federal exemption threshold

The key federal tax interaction for Texans: because you pay no state income tax, you cannot take the state income tax deduction on your federal return. If you itemize, you can elect to deduct state and local general sales taxes in place of income taxes and also deduct your state and local real property taxes, all inside one combined SALT limit: $40,000 ($20,000 married filing separately), reduced at higher incomes but not below $10,000, per IRS Topic 503 (checked October 2026). Texas homeowners who itemize can claim both their property tax and their sales tax; renters who itemize can use the IRS sales tax tables for the sales tax figure.

What Tax Does Texas Not Have?

Texas has constitutionally banned more categories of taxation than any other state. Here is the complete list of taxes that Texas does not impose:

• Personal income tax: banned by Article 8, Section 24-a (2019)
• Capital gains tax: banned by Article 8, Section 24-b (2025)
• Wealth or net worth tax: banned by Article 8, Section 25 (2023)
• Estate tax: banned by HJR 2 (2025)
• Inheritance tax: banned by HJR 2 (2025)
• Gift tax: banned by HJR 2 (2025)
• Securities transaction tax: banned by HJR 4 (2025)
• State property tax: constitutionally prohibited
• Traditional corporate income tax: never enacted (franchise tax is margin-based, not income-based)

Does Texas Have State Taxes? What Texans Actually Pay

Yes. Texans absolutely pay state and local taxes. WalletHub puts Texas's total tax burden at 7.69% of personal income, 36th-highest of the 50 states (WalletHub, March 2026): lower than most, but not zero. The question isn't whether Texans pay taxes; it's how those taxes are structured.

The key distinction: Texas relies on a "two-legged stool" of consumption taxes and property taxes rather than the traditional "three-legged stool" that includes income taxes. This means your tax burden depends heavily on what you buy and what you own rather than what you earn. High-income earners benefit enormously from this structure, while lower-income households bear a proportionally heavier burden.

Does Texas Pay State Taxes? The Revenue Breakdown

Texas absolutely pays state taxes, just not on income. The $338 billion biennial budget for 2026-27 is funded through a diverse mix of revenue sources. Sales tax dominates at roughly 57% of state tax collections, generating $49 billion in FY 2025 alone. Oil and gas severance taxes contribute another $7.9 billion, though this figure swings dramatically with commodity prices. The franchise tax brings in $7.1 billion from businesses. Federal funds, historically 30-40% of total revenue, remain the single largest category, though this share is declining as pandemic-era funding expires.

Other notable revenue sources include motor vehicle sales taxes ($7.1 billion), insurance premium taxes ($4.6 billion and growing 10-15% annually), lottery proceeds ($1.8 billion, mostly for education), and various fees and licenses. A portion of oil and gas severance tax collections flows into the Economic Stabilization Fund (Rainy Day Fund), which has hit its constitutional cap of approximately $24-28 billion.

Should Texas Have a State Income Tax?

This is one of the most debated questions in Texas politics, and the voters have answered it overwhelmingly. The 2019 constitutional ban passed with 74.35% support, and subsequent amendments have continued to restrict the state's taxing authority. But the question persists because the no-income-tax model involves real trade-offs.

The Institute on Taxation and Economic Policy (ITEP) ranks Texas as having the 7th most regressive state and local tax system in the nation. The lowest-income 20% of Texans pay approximately 12.8% of their income in state and local taxes, while the top 1% pay roughly 4.6%. This 3:1 ratio is a direct consequence of relying on flat-rate consumption and property taxes rather than progressive income taxes.

Despite these criticisms, the political reality is clear: no credible legislative effort to introduce an income tax exists. The constitutional barriers are effectively insurmountable, and voter sentiment is overwhelmingly supportive of the current model. The national trend reinforces this: since 2021, 28 states have enacted income tax rate reductions, and three states have adopted trigger mechanisms to eventually eliminate their income taxes entirely.

How Texas Compares to Other No-Income-Tax States

Eight states levy no individual income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming. Washington is often counted with them, but it taxes capital gains (Tax Foundation, 2026). Each has found a different substitute revenue model. On the Tax Foundation's 2026 State Tax Competitiveness Index, no-income-tax states dominate the top rankings: Wyoming (1st), South Dakota (2nd), New Hampshire (3rd), Alaska (4th), Florida (5th), and Texas (7th).

The notable outlier is Washington at 45th, dragged down by one of the nation's highest combined sales tax rates, a capital gains tax recently raised to 9.9%, and an estate tax with a top rate of 35%. Texas's approach is more balanced, using broader revenue sources to avoid the extremes seen in Washington's model.

Moving to Texas? What Your Tax Bill Actually Looks Like

For relocators, the real question isn't just "does Texas have income tax"; it's whether you'll pay less overall. The answer depends on your income level, whether you rent or own, and what state you're coming from. For the complete relocation picture beyond taxes, see our guide to moving to Texas.

The pattern is clear: higher-income households moving from high-tax states see the biggest net benefit. Renters benefit from the income tax savings without the direct property tax hit (though landlords pass some of that cost through in rent). Retirees from states with modest income taxes may find the savings roughly offset by higher property taxes, but the simplicity and peace of mind of zero state tax on retirement income is still valuable.

For personalized calculations, try our Salary Comparison Calculator or Cost of Living Calculator.

Texas Tax Benefits for Retirees

Texas is one of the most tax-friendly states in the nation for retirees. The zero income tax applies to all retirement income without exception: Social Security benefits, pensions, 401(k) distributions, IRA withdrawals, and annuity payments are completely free from state taxation. This makes Texas especially attractive for retirees from states like California (which taxes all retirement income except Social Security) or New York (which taxes most retirement income above $20,000).

Additional property tax benefits for seniors:

• Enhanced homestead exemption: $60,000 additional exemption for homeowners age 65+ (on top of the standard $140,000)
• School tax freeze: once you turn 65, your school district property taxes are permanently frozen at that year's amount
• Tax ceiling transfer: if you sell your home and buy another in Texas, you can transfer your tax ceiling to the new property
• Deferral option: homeowners 65+ can defer property tax payments entirely until the home is sold

For a comprehensive comparison of Texas cities for retirees, see our Best Texas Cities for Retirees guide.

Does Texas Have No Income Tax? The Bottom Line

Confirmed: Texas has no state income tax, and the state has made it constitutionally harder to change this than virtually any policy in American governance. Between 2019 and 2025, Texas voters approved five separate constitutional amendments (Article 8, Sections 24-a, 25, 24-b, 26 and 30) that collectively ban income taxes, wealth taxes, capital gains taxes, estate taxes, and taxes on securities transactions by registered market operators. The legislature has no path to enacting any of these taxes without first achieving a two-thirds supermajority in both chambers and then winning a statewide voter referendum.

For relocators, this means you can plan your move to Dallas, Houston, or Austin with confidence that the no-income-tax advantage is permanent. The trade-offs, higher property taxes and sales taxes, are real but quantifiable. For most middle- and high-income households relocating from high-tax states, the net tax savings are significant and recurring.

Free Download: The Texas Tax Blueprint (PDF)

We've compiled everything you need to know about the Texas tax system into one free PDF. It covers the constitutional history, franchise tax mechanics, property tax analysis, SUTA compliance, remote work implications, and multi-state comparisons.

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