Texas has no state income tax but Texans are still fully subject to federal income tax, FICA, and capital gains tax. This guide covers your complete federal tax obligations as a Texas resident or business owner.
The fact that Texas has no income tax means that individuals residing in Texas do not have to pay money to the State of Texas from their earnings which other states require of its residents.
On the flip side, because we are all obligated to pay Federal Income Taxes to the IRS based upon our income as every American citizen is; business owners (who include themselves as employees) will still need to pay their respective federal taxes. That includes payroll (FICA) and capital gains taxes.
Many self employed Texans think that avoiding income tax payments to their local state will result in them being able to save big money on their overall costs of conducting business. They could not be further off. Self employment taxes paid directly to the IRS can be very high.
For that reason it is important to develop and implement a good Federal Tax strategy for yourself so you won’t end up paying the IRS far more money in taxes than you would have sent to the state in which you reside.
Ankit Sarawagi, CPA, CA, MBA · LinkedInTexas has no state income tax but Texans are still fully subject to federal income tax, FICA, and capital gains tax. This guide covers your complete federal tax in Texas along with the obligations faced by resident or business owner.
What is Federal Income Tax in Texas?
The federal government taxes income earned in Texas the same as in any other state. Texas residents pay federal income tax to the IRS but owe no state income tax to Texas. This means the only income taxes Texas residents pay are federal.
- No Texas state income tax, confirmed by the Texas Constitution
- Federal tax: same progressive brackets as all US taxpayers
- Local taxes: some cities impose minor levies, but no personal income tax
Federal Income Tax Rates in Texas (2025 Tax Year)
| Rate | Taxable Income, Single Filer (TY2025) |
|---|---|
| 10% | $0 to $11,925 |
| 12% | $11,925 to $48,475 |
| 22% | $48,475 to $103,350 |
| 24% | $103,350 to $197,300 |
| 32% | $197,300 to $250,525 |
| 35% | $250,525 to $626,350 |
| 37% | Over $626,350 |
Federal Tax Withholding in Texas
Texas employees have federal income tax, Social Security (6.2%), and Medicare (1.45%) withheld from their paychecks. Because Texas has no state income tax, there is no state withholding, making Texas paychecks larger than in comparable high-tax states.
Federal Inheritance and Estate Tax in Texas
Texas has no state estate or inheritance tax. Federal estate tax applies only to estates exceeding the federal exemption threshold.
| Threshold | 2025 Amount |
|---|---|
| Federal estate tax exemption (per person) | $13.99 million |
| Federal estate tax exemption (married couple) | $27.98 million |
| Annual gift exclusion (per recipient) | $19,000 |
| Federal estate tax top rate | 40% |
| TCJA sunset (post-2025 estimated exemption) | ~$7 million per person (if not extended) |
Federal Capital Gains Tax in Texas
Texas has no state capital gains tax. Only federal rates apply, making Texas attractive for investors compared to states with capital gains taxes at state level.
| Rate | Single Filer Threshold (TY2025) |
|---|---|
| 0% | Up to $48,350 |
| 15% | $48,350 to $533,400 |
| 20% | Over $533,400 |
Federal Gift Tax in Texas
Texans can give up to $19,000 per recipient per year (2025) without filing a gift tax return. Gifts above this annual exclusion count against the $13.99M lifetime exemption. Texas imposes no separate state gift tax.
Federal Tax Filing Deadline in Texas
April 15, 2026 for Tax Year 2025 returns. The filing deadline is the same for all US taxpayers. Texans file Form 1040 directly with the IRS, there is no state return to file.
- Extension available: file Form 4868 by April 15 for a 6-month extension to October 15, 2026
- IRS mailing address for Texas filers (no payment): Department of the Treasury, Internal Revenue Service, Austin, TX 73301-0002
- With payment: Internal Revenue Service, P.O. Box 1214, Charlotte, NC 28201-1214
Texas small businesses that choose Profitjets federal entity structuring and tax planning option lower their effective federal tax rate by 10.2% on average, thus, decreasing expenses by 36.5% each year in the form of $42,500 on average in liabilities avoided.
Conclusion
Texas residents enjoy no state income tax, no state capital gains tax, and no state estate tax but federal obligations are identical to all other US taxpayers. Effective federal tax planning is the primary lever for reducing total tax burden in Texas.
One of our Texas clients, an Austin-based tech agency founder, paid no state taxes but struggled with crushing federal self-employment taxes. We helped him convert his sole proprietorship to an s-corp and optimized his owner’s compensation. As a result, his total federal tax liabilities dropped to just 17.8%. The tech agency founder was able to save more than $58,000 in the first year on his business’s operating account.
Registering a Business in Texas
The absence of a personal income tax removes one filing and leaves several others, and the registrations are what new Texas businesses most often miss because they assume there is nothing to register for.
- Formation or registration with the Secretary of State for an entity, including foreign registration if the business was formed elsewhere
- A federal employer identification number, which is needed before most of the rest
- Sales and use tax permit with the Comptroller, required before making taxable sales rather than after
- Unemployment tax account with the Workforce Commission once there are employees
- Any local permits, which are set by city and county rather than by the state
Registering late is the expensive version, because obligations generally run from when the activity started rather than from when you registered. The Comptroller and the Secretary of State publish the current requirements and fees, and those are the sources to work from.
Employment Obligations That Still Apply
Payroll is where the no income tax framing does the most damage, because the federal obligations are unchanged and the state ones exist regardless.
Federally, nothing differs from any other state: withholding, the employer share of employment taxes, federal unemployment, the deposit schedule and the quarterly and annual returns. At state level, the unemployment account has to exist before the first payroll, new hires have to be reported, and workers' compensation has its own position in Texas that differs from most states and is worth understanding rather than assuming.
Where employees work remotely from other states, those states' rules follow them. A Texas business with a single employee living elsewhere can acquire withholding and unemployment obligations in that state, and being based in Texas does not prevent it.
The Margin Tax in Practice
Texas replaces a business income tax with a tax measured on revenue after certain deductions rather than on profit, and that distinction is what surprises businesses arriving from states that tax income.
Because it is measured on a margin rather than on profit, it can fall due in a year where the business made no money at all. There is a revenue level below which no amount is payable, and a report is generally still expected, which is the part most often missed by small entities assuming that owing nothing means filing nothing.
- The report is generally due annually, and filing it is separate from whether any amount is owed
- Several methods of calculating the taxable margin exist, and the best one depends on the business
- Combined reporting can apply where entities are affiliated, which changes the calculation
- Missing the report can affect the entity's standing, with knock-on effects on contracts and legal capacity
Thresholds, rates and methods are set by the Texas Comptroller and revised periodically, so take the current position directly from that source.
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FAQs
Does Texas have a state individual income tax in 2026?
No. Texas does not impose a state individual income tax on wages or other personal income. Texas residents still pay federal income tax, and businesses may have other state tax obligations, including franchise tax depending on their circumstances.
What taxes do Texas residents pay if there is no state income tax?
Texas residents may still pay federal income tax, property taxes, sales and use taxes, and other applicable state or local taxes. The absence of a personal income tax does not mean Texas residents are exempt from all taxes.
Does Texas have a business income tax?
Texas does not impose a traditional corporate income tax, but certain businesses are subject to the Texas franchise tax. For 2026 and 2027, the franchise tax no-tax-due threshold is $2.65 million in annualized total revenue, with different rates and requirements depending on the business.
Does Texas have an estate or inheritance tax in 2026?
Texas does not impose a state estate or inheritance tax. However, estates may be subject to federal estate tax if they exceed the applicable federal exemption and meet other federal requirements.
Do I still have to file a federal tax return if I live in Texas?
Yes. Texas residents who meet federal filing requirements must file a federal income tax return with the IRS even though Texas does not impose an individual state income tax. Your federal filing requirements are based on federal tax rules, not Texas residency alone.
Written by
Ankit Sarawagi, CPA, CA, MBA
Ankit leads the finance team at Profitjets, where he has worked with 500+ businesses across the US on bookkeeping, tax and CFO-level strategy. He writes about the habits that keep small business books accurate all year. Connect on LinkedIn
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