Overview of Texas Taxes
Texas has no state income tax, which means your salary will only be subject to federal income taxes if you live and work in Texas. When you get your paycheck in Texas you’ll see deductions for federal taxes on your pay stub. No Texas cities impose a local income tax.
This calculator reflects the 2018 federal withholding tax changes.
Click here to learn more about how the Trump Tax Plan will affect you.
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- Our Tax Expert
Jennifer Mansfield, CPA Tax
Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.
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Texas Paycheck Quick Facts
How Your Texas Paycheck Works
Have you ever looked at your paycheck and thought it seemed a little skimpy compared to the amount you thought you'd be taking home? Your hourly wage or annual salary can't give a perfect indication of how much you'll see in your paychecks each year, unless you work under the table. If your work is on the books it will be subject to withholding by your employer.
You and your employer will each contribute 6.2% of your earnings for Social Security taxes and 1.45% of your earnings for Medicare taxes. These taxes together are called FICA (Federal Insurance Contributions Act) taxes. No matter which state you call home, you won't be able to escape those FICA taxes. Income you earn that's in excess of $200,000 will be subject to a 0.9% Medicare surtax.
FICA taxes aren’t the only monies that your employer can withhold from your paycheck. Even if you have employer-sponsored health insurance you might still pay something toward your coverage. Your payment will be deducted from each paycheck. And if you contribute toward a 401(k), a Flexible Spending Account or a Health Savings Account your paycheck will be smaller, too.
Some employers offer optional benefits that can be taken out of your wages before or after taxes. For example, there are commuter benefits that let you deduct the cost of a monthly public transit pass from your earnings before taxes are applied. Any pre-tax deductions, such as those to a 401(k), save you money, even it doesn't feel that way. While you see money being deducted from your take-home pay each pay period, you are reducing your taxable income.
Your marital status, pay frequency, federal allowances (which you claim on your W-4) and the deductions mentioned above all contribute to the size of your paycheck. If you think too much or too little money is being withheld from your paycheck you can file a new W-4 with your employer at any time during the year to change the number of allowances you’re claiming.
The information on your W-4 form will also determine how much is withheld from your paycheck for federal income taxes. It may be worth rechecking your W-4 because President Trump's new tax plan has caused a change in withholding calculations. The IRS released their new withholding guidelines in January, to reflect the new tax plan, and you should have seen changes to their paychecks starting in February 2018. For the time being, you do not need to fill out a new W-4 (though it may be worth it). Your employer will use the withholdings on your current form.
Texas Median Household Income
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Payroll taxes in Texas are relatively simple because there is no state or local income tax. Texas is a good place to be self-employed or own a business because the tax withholding won't be too much of a headache. And if you live in a state with an income tax but you work in Texas you'll be sitting pretty compared to your neighbors who work in a state where their wages are taxed at the state level. If you're considering moving to the Lone Star State, our Texas mortgage guide has information about rates, getting a mortgage in Texas and details about each county.
Be aware, though, that payroll taxes aren’t the only relevant taxes in a household budget. In part to make up for its lack of a state or local income tax, sales and property taxes in Texas tend to be high. So your big Texas paycheck may take a hit when your property taxes come due.
How You Can Affect Your Texas Paycheck
A salary of $50,000 in Texas will go further than the same salary would in state with a high income tax like California, New Jersey or Minnesota. If you're moving to Texas from a state where your income was taxed, you'll probably notice the difference when you get your first few paychecks. You can take moving to an income tax-free state as an opportunity to increase the percentage of your salary that goes into retirement savings.
If you want to boost your paycheck rather than find tax-advantaged deductions from it, you can seek what are called supplemental wages. That includes overtime, bonuses, commissions, awards, prizes and retroactive salary increases. These supplemental wages would not be subject to taxation in Texas because the state lacks an income tax. However, they will be subject to federal income taxes.
The federal tax rate for supplemental wages depends on whether your employer rolls them in with your regular wages or disburses them separately. They can either be taxed at your regular rate or at a flat rate of 25%. If your normal tax rate is higher than 25% you might want to ask your employer to identify your supplemental wages separately and tax them at that 25% rate.
Most Paycheck Friendly Places
SmartAsset's interactive map highlights the most paycheck friendly counties across the country. Zoom between states and the national map to see data points for each region, or look specifically at one of the four factors driving our analysis: Semi-Monthly Paycheck, Purchasing Power, Unemployment Rate, and Income Growth.
Methodology Our study aims to find the most paycheck friendly places in the country. These are places in the country with favorable economic conditions where you get to keep more of the money you make. To find these places we considered four different factors: semi-monthly paycheck, purchasing power, unemployment rate and income growth.
First, we calculated the semi-monthly paycheck for a single individual with two personal allowances. We applied relevant deductions and exemptions before calculating income tax withholding. To better compare withholding across counties we assumed a $50,000 annual income. We then indexed the paycheck amount for each county to reflect the counties with the lowest withholding burden.
We then created a purchasing power index for each county. This reflects the counties with the highest ratio of household income to cost of living. We also created an unemployment rate index that shows the counties with the lowest unemployment. For income growth, we calculated the annual growth in median income over five years for each county and indexed the results.
Finally, we calculated the weighted average of the indices to yield an overall paycheck friendliness score. We used a one half weighting for semi-monthly paycheck and a one-sixth weighting for purchasing power, unemployment rate and income growth. We indexed the final number so higher values reflect the most paycheck friendly places.
Sources: SmartAsset, government websites, US Census Bureau 2016 5-Year American Community Survey, MIT Living Wage Study, Bureau of Labor Statistics