Understanding Taxes in Texas: Income, Property, and Sales Tax Rates

The Lone Star State of Texas is known for many things, including its lack of state income tax. This means that residents don’t have to worry about paying taxes on their individual income, retirement plans, or investment earnings. However, there is a trade-off for this tax benefit – Texas has some of the highest property and sales tax rates in the country.

According to the Tax Foundation, the average property tax rate in Texas is 1.47 percent of a home’s assessed value. This can vary depending on where you live, with some areas having higher rates than others. In terms of sales tax, the state levies a 6.25 percent tax on goods and services, with local rates adding up to an average combined rate of 8.2 percent.

While Texas doesn’t tax pension distributions, IRAs, 401(k) plans, or other retirement income, there are federal taxes to consider, especially when it comes to Social Security benefits. Depending on your income, you may have to pay federal taxes on a portion of your Social Security benefits.

For older residents of Texas, there are some tax breaks available, such as property tax exemptions and deferrals. Seniors can also take advantage of certain exemptions for disabled veterans and military benefits are not taxed in the state.

Overall, Texas offers a unique tax landscape for its residents, with no state income tax but higher property and sales tax rates. It’s important for Texans to understand these tax implications and take advantage of any available tax breaks to maximize their financial well-being.