Can You File Taxes in Texas? What to Know About Tax Requirements

Filing taxes can be confusing, especially when state and federal rules differ. Texas stands out by not imposing a personal income tax, simplifying tax filing for residents. However, Texans are still responsible for other tax obligations at both the state and federal levels.

No Personal Income Tax

Texas does not impose a personal income tax, a policy set in the state’s constitution in 1845. Residents are not required to file a state income tax return or pay taxes on wages, salaries, or other personal earnings. This has contributed to the state’s population growth, attracting individuals and businesses seeking lower tax burdens.

To compensate for the lack of income tax, Texas relies on sales and property taxes. The state sales tax rate is 6.25%, with local jurisdictions permitted to add up to 2%, bringing the maximum rate to 8.25%. Property taxes, determined at the local level, are among the highest in the country, with an average effective rate of 1.60%, well above the national average of 0.99%.

Federal Filing Requirements

Even without a state income tax, Texans must still meet federal tax obligations. The IRS requires most U.S. citizens and residents to file a federal tax return if their income exceeds certain thresholds. For 2024, single filers under 65 must file if they earn at least $14,600, while married couples filing jointly must file if their income exceeds $29,200. Social Security recipients may also need to file if they have additional taxable income.

Self-employed individuals must file a return if net earnings exceed $400, as they are responsible for self-employment taxes covering Social Security and Medicare. Unlike employees who have these taxes withheld, self-employed individuals must calculate and remit payments themselves, typically through quarterly estimated tax payments. Failing to do so can result in penalties and interest charges.

Tax credits and deductions can reduce tax liability. The Earned Income Tax Credit (EITC) benefits low-to-moderate-income workers, while the Child Tax Credit (CTC) provides relief for families with dependent children. The standard deduction for 2024 is $14,600 for single filers and $29,200 for married couples. Those with significant medical expenses, mortgage interest, or charitable contributions may benefit from itemizing deductions.

Texas Franchise Tax for Businesses

Businesses operating in Texas are subject to the state’s franchise tax, which applies to most for-profit entities, including corporations, limited liability companies (LLCs), and partnerships. Sole proprietorships and certain passive entities are exempt. For 2024, businesses with annual gross receipts below $2.47 million qualify for the No Tax Due threshold, meaning they are not required to pay but must still file a report.

The tax is based on a business’s margin, calculated using one of four methods: total revenue minus cost of goods sold (COGS), total revenue minus compensation, total revenue at 70%, or total revenue minus $1 million. Retail and wholesale businesses pay 0.375%, while other taxable entities pay 0.75%. Businesses with revenue below $20 million can use the EZ Computation method, which applies a flat 0.331% rate but does not allow deductions for COGS or compensation.

Businesses must file an annual franchise tax report and a Public Information Report (PIR) or Ownership Information Report (OIR) by May 15. Late filings incur a $50 penalty. If taxes remain unpaid, penalties start at 5% after the due date and increase to 10% after 30 days. Continued noncompliance can result in forfeiture of the right to conduct business in Texas.

Sales and Property Taxes

Texas relies heavily on sales and property taxes. The state sales tax applies to most retail purchases, leases, and taxable services, though unprepared food, prescription drugs, and medical supplies are exempt. Businesses collecting sales tax must remit payments to the Texas Comptroller, with filing frequency based on sales volume. High-volume sellers file monthly, while smaller businesses file quarterly or annually. Failure to remit collected taxes can result in fines and interest charges.

Property taxes fund public schools, infrastructure, and emergency services. County appraisal districts assess property values annually, and homeowners can contest valuations if they believe their assessed value is too high. Exemptions help reduce tax burdens, including the homestead exemption, which lowers the taxable value of a primary residence by at least $40,000. Additional exemptions exist for seniors, disabled individuals, and military veterans.

Filing Extensions and Penalties

Meeting tax deadlines is crucial to avoiding penalties and interest charges. While Texas does not require individuals to file a state income tax return, businesses and those with federal tax obligations must adhere to deadlines. The IRS allows taxpayers to request a six-month extension using Form 4868 for individuals or Form 7004 for businesses, pushing the filing deadline to October 15. However, extensions apply only to paperwork, not payments. Taxes owed must still be paid by the original due date, usually April 15, to avoid penalties and interest.

For businesses subject to the Texas franchise tax, an extension can be requested by filing Form 05-164 and paying at least 90% of the tax due by May 15. If a business owes less than $10,000, it must pay at least 100% of the prior year’s tax to qualify for an extension. Late payments result in penalties starting at 5% of the unpaid amount, increasing to 10% after 30 days. Additional interest accrues on unpaid balances. If a business fails to file, it risks forfeiture of its right to operate in Texas, affecting contracts and legal protections.

Refund and Payment Arrangements

Taxpayers who overpay federal taxes may receive a refund, typically processed within 21 days for electronic filers and six to eight weeks for paper returns. Direct deposit speeds up the process, while mailed checks take longer. Refunds may be reduced if the taxpayer has outstanding federal or state debts, such as unpaid student loans or child support, through the Treasury Offset Program.

For those unable to pay their tax bill in full, the IRS offers payment plans. Short-term plans allow up to 180 days to pay without setup fees, though interest still applies. Long-term installment agreements are available for larger balances, with monthly payments deducted from a bank account. Businesses struggling to pay franchise tax can request a payment plan through the Texas Comptroller, though approval depends on financial circumstances and past compliance history. Failure to arrange a payment plan or pay taxes owed can result in liens, wage garnishments, or asset seizures.