Texas has no income tax, but a new study shows why we still rank high for taxes
Texas doesn’t have a state income tax, but a new study says residents still face some of the highest tax costs nationwide.
Personal finance company WalletHub ranked the Lone Star state 42 out of 51 (including Washington, D.C.) in a new report that compares how much households pay through major taxes each year.
“Low income taxes don’t always mean low taxes as a whole,” WalletHub Analyst Chip Lupo said. “Every year during tax season, Americans are reminded of just how much of their hard-earned income isn’t theirs to keep.”
The analysis breaks down how property taxes, sales taxes and other recurring costs shape a family’s overall tax load.
Here’s what to know.
Where does Texas rank for total tax burden?
WalletHub estimated that a typical Texas household pays an effective tax rate of 12.59%, which reflects what residents owe through major taxes collected across the state.
The study also estimated how much the median U.S. household would pay under Texas’ tax structure, and put that amount at about $10,222 a year.
When adjusting the calculation for Texas’ median income, the annual cost drops to about $9,351, reflecting differences in earnings between Texas and the national average.
WalletHub says these figures help show how much the state’s tax system can impact families at different income levels.
The estimates are part of the formula used to compare how each state’s tax structure weighs on a typical household.
Why are Texas’ tax costs high without an income tax?
Texas doesn’t tax personal income, but those savings disappear once property and sales taxes are factored in.
WalletHub found that property taxes are one of the biggest expenses for Texas homeowners because they help fund schools, public safety and county services.
Sales taxes also make a noticeable difference. The state sales tax rate is 6.25%, and many cities and counties add enough local taxes to bring the total to 8.25% on most purchases, according to the Texas Comptroller’s Office.
These taxes affect residents across all income levels because they show up in everyday spending.
How does Texas compare with other states?
Texas sits closer to higher-burden states than lower-burden ones in WalletHub’s national comparison.
The report found that Alaska had the lowest overall tax burden, in part because revenue from natural resources reduces what residents pay directly.
Illinois ranked highest due to steep property taxes and additional local charges.
“Living in the right state can ease the stress of tax time, as taxpayers in the least expensive states pay less than half as much as those in the most expensive states,” Lupo said.
How did WalletHub calculate the rankings?
WalletHub compared all 50 states and Washington, D.C., using the same model household to keep the rankings consistent.
The group used national averages for income, home value and vehicle costs to estimate how much a typical family would pay under each state’s tax system.
The analysis measured real-estate taxes, vehicle property taxes, income taxes (for states that have them) and sales taxes.
Wallet Hub pulled its data from the U.S. Census Bureau, the Tax Foundation and state tax agencies to create its estimates.
The goal was to show how state tax structures stack up when applied to the same family profile.
