Texas is the largest no-income-tax state by population, and its constitution explicitly prohibits a personal income tax unless approved by voters in a statewide referendum. This means your Texas paycheck is subject only to federal income tax and FICA deductions. For high-income earners, this can translate to thousands of dollars in annual savings compared to states like California or New York.

The trade-off for zero income tax is one of the highest property tax rates in the country. Texas's average effective property tax rate is approximately 1.68%, ranking among the top ten nationally. On a median-value home in Texas (roughly $240,000), this translates to about $4,032 per year. Property taxes fund local school districts, counties, cities, and special districts, and rates can vary substantially by location — some areas near Houston or Dallas exceed 2.5%.

Texas offers a homestead exemption for primary residences. School districts must offer a $100,000 homestead exemption, and taxpayers 65 and older (or disabled) receive an additional $10,000 school district exemption plus a tax ceiling freeze. Cities and counties may offer additional optional exemptions. Filing for your homestead exemption is critical — it is not automatic.

The state sales tax rate is 6.25%, with local jurisdictions adding up to 2%, bringing the maximum combined rate to 8.25% and the average combined rate to approximately 8.20%. Groceries (unprepared food) and prescription drugs are exempt from sales tax. Texas also has periodic sales tax holidays for back-to-school supplies, emergency preparation items, and energy-efficient products.

Texas's cost-of-living index is approximately 97, slightly below the national average. However, this varies enormously by metro area. Austin has seen rapid cost-of-living increases due to tech industry growth, while San Antonio, El Paso, and many smaller cities remain well below the national average. Houston and Dallas fall in between, with affordable suburbs and more expensive urban cores.

Texas has no estate tax or inheritance tax. The state does impose a franchise tax (often called the "margin tax") on businesses with revenue exceeding $2.47 million, but this does not affect W-2 employees directly. Self-employed individuals and small business owners with revenue below the threshold are exempt from the franchise tax.