If you’re looking for a state income tax return form in Texas, stop looking. You won't find one. There is no state income tax in Texas, and frankly, that’s one of the biggest reasons the state’s population has been exploding like a firework for the last decade.
But wait. "Free" money usually isn't free.
People move here thinking they’ll suddenly have thousands of extra dollars in their pockets every month. While that's often true for high-earners, the state still has to keep the lights on and the roads paved. They just get that money from you in different ways.
The Constitutional Wall Against Income Tax
Texas doesn’t just skip the income tax because it’s a "vibe." It’s actually written into the state's DNA. Back in 2019, voters overwhelmingly passed Proposition 4. This wasn't just a simple law; it was a constitutional amendment.
Basically, it made it incredibly difficult for the legislature to ever sneak an income tax through. To change this now, you’d need a two-thirds vote in both the Texas House and Senate, plus another statewide vote from the people. In the current political climate, that's about as likely as a blizzard in Houston in July.
Even as we sit here in 2026, the state is doubling down. Recently, the 89th Legislature pushed through SJR 18, which aimed to block the state from ever enacting a capital gains tax too. They saw what happened in Washington state—where they have no income tax but added a tax on investment profits—and Texas leaders said, "Not on our watch."
Where Does the Money Actually Come From?
If Texas isn't taking a slice of your paycheck, how do they fund the multi-billion dollar budget? It’s a mix of three main buckets: sales tax, property tax, and "severance" taxes on oil and gas.
1. The Sales Tax Squeeze
The state sales tax rate is 6.25%. That sounds manageable, right? But then the local cities, counties, and transit authorities tack on their own bits. Almost everywhere you go—Dallas, Austin, San Antonio—you’re paying the maximum of 8.25% at the register.
You buy a new truck? 8.25%. You grab a coffee? 8.25%. It adds up fast.
2. Property Taxes: The Real "Income Tax"
This is the part that shocks newcomers. Texas has some of the highest property taxes in the United States. Since there's no state-level property tax, your local school districts and counties handle the billing.
In 2026, the average property tax rate in Texas is roughly 1.74%. If you own a $450,000 home in a high-growth area like Collin County or Fort Bend, your annual tax bill could easily top $10,000.
- Homestead Exemptions: There is some relief. The school tax exemption was recently bumped to $110,000.
- Appraisal Caps: Your "assessed" value (what you pay taxes on) can't jump more than 10% a year for your primary home.
- Renters pay too: Don't think you're safe if you rent. Landlords just bake those high tax bills directly into your monthly rent.
3. Oil and Gas (The "Severance" Tax)
Texas is lucky. We sit on a lot of oil. The state charges a 4.6% tax on oil production and 7.5% on natural gas. When the energy market is booming, the state’s "Rainy Day Fund" (the Economic Stabilization Fund) gets fat. When prices drop, the state budget gets a little nervous.
Is It Actually Cheaper to Live Here?
Honestly, it depends on your tax bracket.
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If you’re a high-earner making $250,000 a year, the lack of a 5% or 10% state income tax saves you $12,500 to $25,000 annually. That easily covers the $10,000 property tax bill. You win.
But if you’re making $45,000 a year? You aren't saving much on income tax, but you're still paying that 8.25% sales tax on everything you buy and potentially high rent because your landlord is getting hammered by property taxes. For lower-income families, Texas can actually feel more expensive than some states with a modest income tax.
What About Businesses?
Businesses love the "Texas Miracle," but they don't get a totally free ride either. There is something called the Franchise Tax.
For 2026, the "no-tax-due" threshold is $2,650,000. If your business makes less than that in total revenue, you generally don't owe the state any franchise tax (though you still have to file some paperwork). If you make more, the rates are typically 0.375% for retailers/wholesalers and 0.75% for other businesses. It’s not an "income tax" in the traditional sense because it's based on your margin or gross receipts, not just net profit.
Actionable Next Steps for You
If you're moving to Texas or already here and trying to optimize your finances, here is what you should actually do:
- File Your Homestead Exemption: If you bought a home, do this immediately. It’s the single biggest way to slash your property tax bill. In 2026, you must occupy the home by January 1st to qualify for that year.
- Protest Your Appraisal: Every Spring, the county will tell you what they think your house is worth. Always protest it. Even if you don't hire a professional, the informal hearing can often shave a few hundred bucks off your bill.
- Check Local Sales Tax: If you're making a massive purchase (like a tractor or expensive equipment), check the rates in nearby jurisdictions. A 1% difference on a $50,000 purchase is $500 in your pocket.
- Calculate Your "Total Tax Burden": Don't just look at the 0% income tax. Add up your expected property tax and estimated sales tax. If that number is lower than your current state's total, you're in the clear.
Texas is a "pay-as-you-go" state. You keep your paycheck, but you pay when you shop and pay where you sleep. For many, it's a winning trade. For others, it's just a different way for the government to reach into your wallet.