Overview
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 Tax Characteristics
Texas has no state income tax
Your entire salary is exempt from state income tax withholding. Only federal income tax and FICA (Social Security and Medicare) are deducted from your paycheck.
| Tax Type | Rate |
|---|---|
| Average Property Tax Rate | 1.68% |
| Average Combined Sales Tax Rate | 8.2% |
| Cost of Living Index | 97.1 (US avg = 100) |
Understanding Texas Taxes
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.
Filing Tips for Texas
File for your homestead exemption immediately after purchasing your home — you must apply through your county appraisal district
If you are 65 or older, apply for the senior exemption and tax ceiling freeze to lock your school district taxes
Protest your property tax appraisal annually — Texas appraisal districts frequently overvalue properties, and informal hearings often result in reductions
Watch for sales tax holiday weekends to save on back-to-school supplies and emergency preparation items
State Revenue Authority
For the most current tax information, visit the official Texas tax authority:
comptroller.texas.govRelated Calculators
Frequently Asked Questions
For educational purposes only -- not financial or tax advice. Tax rates shown are based on 2026 data and may not reflect recent changes. Consult a tax professional for your specific situation.