What Is the Tax in Texas? Income, Payroll and Paycheck Taxes Explained

Texas does not impose an individual personal income tax on wages, but Texas workers still have federal income tax and FICA deductions taken from their paychecks.

When people ask "What is the tax in Texas?", they are often referring to four very different tax systems:

1. 1State Income Tax: None on personal wages or salaries (0.0%).
2. 2Paycheck Withholding: Federal Income Tax (FIT), Social Security (6.2%), and Medicare (1.45%).
3. 3Sales & Use Tax: A 6.25% state tax plus local municipal taxes up to 2.0% (totaling between 6.25% and 8.25%).
4. 4Property Tax: Local ad valorem taxes assessed on residential and commercial real estate by county appraisal districts.
5. 5Business Franchise Tax: A privilege tax on entities operating with liability protection in Texas.

If you work as a W-2 employee in the state of Texas:

• Texas Personal Income Tax: $0.00 (Guaranteed by Proposition 4 passed in 2019, enshrining Article VIII § 24-a into the Texas Constitution requiring a two-thirds legislative vote and statewide voter referendum to ever enact one).
• Federal Income Tax: Withheld from every paycheck based on your Form W-4.
• Social Security Tax (OASDI): 6.2% on all wages up to $184,500 in 2026.
• Medicare Tax (HI): 1.45% on all wages, plus 0.9% on earnings exceeding $200,000.
• State Disability or City Taxes: $0.00 (Texas has no employee-funded SDI or city wage taxes).

Here is the exact annual, monthly, and biweekly breakdown for a single employee earning $60,000 per year in Texas (claiming standard deduction, zero pre-tax benefits):

• Annual Gross Wages: $60,000.00
• Federal Taxable Income: $60,000 − $16,100 standard deduction = $43,900.00
• Federal Income Tax Withheld: About $5,020.00
• Social Security (6.2%): $3,720.00
• Medicare (1.45%): $870.00
• Texas State Income Tax: $0.00
• Total Annual Taxes Withheld: $9,610.00 (Effective rate: 16.0%)
• Annual Net Take-Home Pay: $50,390.00
• Monthly Net Take-Home Pay: $4,199.17
• Biweekly Net Take-Home Pay: $1,938.08

Sales tax is what consumers encounter every day across the Lone Star State:

• Statewide Base Sales Tax: 6.25% collected by the Texas Comptroller of Public Accounts.
• Local Option Sales Tax: Cities, counties, transit authorities, and special purpose districts can levy up to an additional 2.00%.
• Maximum Combined Sales Tax: 8.25% (in major metropolitan hubs like Houston, Dallas, Austin, and San Antonio).
• Exemptions: Unprepared grocery food items, prescription medicines, and residential electricity are generally exempt from Texas sales tax.

Texas does not collect a state-level property tax. Instead, local governing units—such as school districts, county appraisal districts, hospital districts, and community colleges—levy local property taxes to fund public infrastructure and schools.

Because the state does not generate billions from an individual income tax, Texas local property taxes are among the higher averages nationally:

• Typical combined property tax rates range from 1.6% to 2.5% of assessed property market value annually.
• Homeowners who occupy their home as their primary residence qualify for the General Residence Homestead Exemption, which removes $100,000 from the assessed value for school district property taxes.

Businesses operating in Texas encounter the Texas Franchise Tax (often referred to as the Margin Tax):

• Assessed on taxable entities including corporations, LLCs, and partnerships.
• No Tax Due Threshold: Entities with annual annualized total revenue below the statutory threshold (over $2.47 million) owe zero franchise tax, though an information report is still required.
• Unemployment Tax (SUTA): Texas employers pay state unemployment taxes on the first $9,000 of wages per employee based on their Texas Workforce Commission (TWC) experience rating.

Consider the real-world difference between working in Texas versus California on an identical $60,000 salary:

The Texas worker keeps $2,430 more in cash each year on their paychecks ($202.50 per month).

No state is truly tax-free. While Texas is an income-tax-free state for individual wage earners, the state funds public obligations through alternative revenue mechanisms:

• High local property tax rates.
• Broad 8.25% combined sales taxes on retail goods and restaurant meals.
• State fuel excise taxes (20¢ per gallon).
• Vehicle sales and registration taxes (6.25% sales tax on motor vehicle sales).

However, for households with high wage income relative to home value and retail spending, Texas provides a remarkably favorable overall tax structure.

To figure out your Texas take-home pay:

1. 1Start with your gross wages for the pay period.
2. 2Deduct pre-tax benefits (Section 125 health insurance, traditional 401k).
3. 3Deduct Social Security (6.2% up to $184,500).
4. 4Deduct Medicare (1.45% on all earnings).
5. 5Apply federal withholding based on your Form W-4.
6. 6Record state income tax as $0.00.
7. 7Subtract all federal deductions from gross pay to get your net direct deposit.

Texas has no state-specific daily overtime law. Overtime in Texas is governed by the federal Fair Labor Standards Act (FLSA):

• Overtime is earned after working more than 40 hours in a 7-day workweek.
• Overtime is paid at 1.5 times your regular hourly rate.
• Working 12 hours on one day does not trigger overtime if your weekly hours do not exceed 40.

Common questions regarding Texas taxes and paycheck deductions: