Tax in Texas: a complete guide
From the absence of state income tax to the ins and outs of sales tax, get to grips with the taxes in Texas with this comprehensive guide.
Summary
Texas tax structure has a particularly positive reputation in the US.
Texas is one of only nine American states that doesn’t charge any state income tax.
Texas taxes all retail sales at 6.25 percent statewide.
Texas is one of 38 US states which doesn’t levy an inheritance or estate tax.
Speak to a financial advisor about getting your tax and finances in order.
What are the taxes in Texas?
Texas has a particularly positive reputation in the tax department.
It’s in the company of just a handful of other places in the US with no state-level income tax. In fact, the Tax Foundation ranks Texas’s overall state and local tax burden as one of the lowest in America.
With these factors in mind, it’s no wonder that Texas is an option for many Americans to make their state of residence. But Texas isn’t totally tax-free. Its most significant source of tax revenue comes from sales tax, with franchise and vehicle-related taxes close behind.
If you need help getting your taxes in order, Unbiased can connect you to a financial advisor perfectly suited to meet your needs. Simply answer a few questions, and we will connect you with a financial advisor for your exact situation. Get started here.
Texas income tax
Texas is one of only nine American states that doesn’t charge any state income tax to individuals (or corporations below a certain revenue ceiling). If you’re living in or planning to relocate to the state, you’ll mainly need to focus on accounting for federal income tax.
As of 2023, there are seven federal brackets:
| Federal income tax rate | A single person OR a married person/ registered domestic partner filing separately | A married person/ registered domestic partner filing jointly OR a qualifying widower | A head of household |
|---|---|---|---|
| 10 percent | $0 to $11,000 | $0 to $22,000 | $0 to $15,700 |
| 12 percent | $11,001 to $44,725 | $22,001 to $89,450 | $15,701 to $59,850 |
| 22 percent | $44,726 to $95,375 | $89,451 to $190,750 | $59,851 to $95,350 |
| 24 percent | $95,376 to $182,100 | $190,751 to $364,200 | $95,351 to $182,100 |
| 32 percent | $182,101 to $231,250 | $364,201 to $462,500 | $182,101 to $231,250 |
| 35 percent | $231,251 to $578,125 | $462,501 to $693,750 | $231,251 to $578,100 |
| 37 percent | $578,126 or more for single people, $346,876 or more for married people/domestic partners filing separately | $693,751 or more | $578,101 or more |
Texas doesn’t have any corporate income tax. It does, however, enforce a franchise tax. For 2022 and 2023, this “privilege tax” applies to businesses with revenue exceeding $1.23 million. For retailers and wholesalers, it’s charged at 0.375 percent. For other businesses outside of this scope, it’s charged at 0.75 percent.
Texas sales tax
Texas taxes all retail sales at 6.25 percent statewide, but consumers may face a rate of up to 8.25 percent total, thanks to the addition of local district, county, and city taxes.
Most things, from cable television to Wi-Fi to security services, are taxable. Alcohol is taxed differently by type, with wine and beer at $0.20 per gallon and liquor at $2.40 per gallon. There are some sales tax exemptions for things like:
Clothing
Groceries (excluding candy, soda, and alcohol according to Texas law)
Prepared food
Prescription and OTC drugs
Like many other states, such as Florida, Texas sometimes offers temporary sales tax “holidays” during which exemptions expand, and sales tax doesn’t need to be paid on specific item categories.
For example, a back-to-school sales tax holiday in August 2023 covers clothing, footwear, and a wide range of school supplies.
Texas property tax
If you’re a current homeowner hoping to relocate or a first-time buyer scoping out houses in Texas, you’ll want to know how much it will cost. The average property price is $294,336. However, there are other associated fees you also need to consider. One such fee that can add to the expense of a new home is property tax.
In Texas, there is no statewide property tax rate. Instead, the amount you’ll pay in property tax is set and organized by local governments in different cities, counties, and districts. They will appraise the value of your home and then multiply it by the local tax rate to determine your bill. Then, the tax money you pay will fund local services, from schools to roads to fire engines.
If you own an agricultural or timberland property, you can apply for a special appraisal process based on the value of things like your livestock, crops, or timber. In terms of exemptions to property tax:
Homeowners over 65 can qualify for a $10,000 reduction in property tax.
Disabled homeowners can qualify for a $10,000 reduction in property tax (if the disabled person is a veteran injured in service, further exemptions may also apply).
The Homestead Exemption allows for a considerable $40,000 reduction in property tax if the property is your principal residence as of January 1 of that tax year.
Texas estate tax
One of the common questions for future inheritors and people getting their affairs in order is, “Will I need to pay estate tax?”
In Texas, the answer is usually a “No.”
Thankfully for tax planning purposes, Texas is one of 38 US states which doesn’t levy an inheritance or estate tax. This has been the case since the state inheritance tax was repealed in 2015 with Chapter 211 of the Texas Tax Code.
On a federal level, it’s important to note that you could still be required to pay tax on your estate/inheritance if its value exceeds $12.92 million.
Texas motor tax
If you’re buying a motor vehicle in Texas in either new or used condition, you must pay vehicle sales tax. The general rate of sales tax, 6.25 percent, applies, as do local taxes on top of this amount. You’ll also be taxed for diesel and unleaded gasoline at $0.20 per gallon.
If you buy a car or other vehicle in another state but live in Texas, you’ll need to ensure you’re in line with the motor tax laws of your purchasing state, too. If you’re a new Texas resident bringing your existing vehicle into the state, you’ll have to pay a fee of $90 to re-register in a new place.
Texas retirement tax
Many consider Texas one of the most tax-friendly states for retirees because there is no state income tax on personal money. Tax burdens won’t reduce the amount of money in your pension and retirement fund that’s accessible to you.
Texas also doesn’t tax income for those looking to work part-time during retirement, making it very appealing for retirees who’d love to keep one foot in the working world.
Overall, there's a lot to love about the Lone Star State. Whether you’re on the cusp of retirement or hoping to reduce your tax liability and explore a new adventure understanding what your tax burden will look like is key. A financial advisor can help you handle all your tax queries and ensure you’re not paying more tax than needed.
Frequently asked questions
Senior Content Writer
Rachel is a Senior Content Writer at Unbiased. She has nearly a decade of experience writing and producing content across a range of different sectors.