Texas has become the top destination for Americans fleeing high-tax states, and the pitch is simple: zero state income tax. No tax on your salary, no tax on capital gains, no tax on retirement withdrawals, no tax on anything you earn. For a high earner relocating from California or New York, the savings can be five or even six figures per year. But Texas is not a tax-free paradise — the state collects revenue through other channels, and those costs can significantly reduce your net savings depending on your income level, housing situation, and spending patterns.
The headline benefit is real and substantial. Texas is one of nine states with no personal income tax, and unlike New Hampshire (which taxes interest and dividends), Texas taxes no income of any kind at the state level. The savings at various salary levels compared to the median state income tax rate of approximately 4.5% are meaningful: at $75,000, you save roughly $3,000 per year. At $150,000, the savings jump to approximately $7,000. At $300,000, you keep about $16,000 more. For earners above $500,000, particularly those relocating from California's 13.3% top bracket, the annual savings can exceed $40,000.
But here is where the math gets complicated. Texas has some of the highest property taxes in the United States, with an average effective rate of 1.6% to 1.8% depending on the county. In some suburban counties around Houston and Dallas, effective rates exceed 2.0%. On a $400,000 home — roughly the median for desirable neighborhoods in Austin, Dallas, or Houston — annual property taxes range from $6,400 to $7,200. Compare that to Colorado at roughly $3,500 on the same home value, or California at approximately $2,800 thanks to Proposition 13's assessment caps that limit annual increases to 2%.
The property tax burden in Texas is especially punitive for homeowners in expensive areas. A $600,000 home in a good Austin school district can easily face property taxes of $10,800 to $12,000 per year. In California, Prop 13 would cap that same home's property tax at roughly $6,000 to $7,500 depending on purchase date. For homeowners, the property tax premium in Texas can erase a significant portion of the income tax savings, particularly at moderate income levels where the income tax savings are smaller in absolute terms.
Sales tax adds another layer of cost. Texas charges 6.25% at the state level, and most cities and counties add local sales tax of 1.5% to 2%, bringing the total to 8.25% in major metro areas like Houston, Dallas, San Antonio, and Austin. This applies to most goods and many services. A household spending $50,000 per year on taxable purchases pays approximately $4,125 in sales tax. While food for home consumption is exempt, prepared food, clothing, electronics, furniture, and vehicles are all taxed at the full rate.
Texas is a clear winner for high earners — particularly those earning $150,000 or more. At this income level, the income tax savings from a state like California ($12,000 to $15,000 per year) overwhelmingly exceed the property and sales tax premiums. Remote workers earning coastal salaries are the biggest beneficiaries: a software engineer earning $200,000 from a Bay Area company while living in a $400,000 Dallas suburb saves roughly $14,000 in state income tax, pays perhaps $3,000 more in property tax than they would have in California, and comes out $11,000 ahead — before considering the lower cost of living on everything else.
Texas is less of a slam dunk for moderate earners and retirees in expensive areas. A retired couple living in a $500,000 home in a nice Austin neighborhood on $80,000 per year of retirement income faces $8,000 to $9,000 in annual property taxes. If they moved from a state with a 4% income tax rate, their income tax savings are only about $3,200. The property tax alone may exceed their income tax savings, making the move a net negative from a tax perspective. Texas does offer a homestead exemption ($100,000 for over-65 homeowners from school district taxes) and a property tax ceiling freeze for seniors, which helps — but does not fully offset the high base rates.
Comparing Texas to the most common origin states helps clarify the decision. California to Texas is the biggest win: income tax savings of $8,000 to $25,000 depending on income, partially offset by $2,000 to $4,000 more in property taxes and $1,000 to $2,000 more in sales tax. Net savings for a $150K earner: approximately $7,000 to $10,000 per year. New York to Texas offers similar savings, especially for NYC residents who also escape the city income tax. Colorado to Texas is more moderate: Colorado's flat 4.4% tax yields lower savings, and Colorado's property taxes are already relatively low. The net benefit might be only $2,000 to $4,000. Florida to Texas is essentially a lateral move: both have no income tax, but Florida has significantly lower property taxes (0.86% average versus 1.7%), making Florida the better deal for homeowners.
Cost of living within Texas varies substantially. Austin has become an expensive city, with a cost of living index around 105 — above the national average — driven by rapid population growth and a hot housing market. Houston, Dallas-Fort Worth, and San Antonio remain more affordable, with COL indices ranging from 88 to 95. For maximum financial benefit, earning a high salary while living in one of Texas's more affordable metros is the optimal combination. A $180,000 earner in Houston (COL 92) captures both the tax savings and the low cost of living.
There are non-tax costs in Texas that deserve consideration in any relocation financial plan. Car insurance rates are among the highest in the nation, averaging $1,800 to $2,200 per year for full coverage. The ERCOT electrical grid, while usually functional, can produce extreme bills during weather events — some Texans saw $5,000 electricity bills during the 2021 winter storm, and rates remain volatile compared to regulated markets. Health insurance marketplace premiums vary widely by county but are generally competitive. Texas has not expanded Medicaid under the ACA, which affects low-income residents but does not impact most relocating professionals.
Let us run the net calculation for a specific scenario. A $120,000 earner moving from California to a $350,000 home in the Dallas suburbs. In California: state income tax approximately $6,200, property tax approximately $4,200 (Prop 13 rate), sales tax approximately $3,000 on spending. Total state and local tax: approximately $13,400. In Texas: state income tax $0, property tax approximately $6,300 (1.8% rate), sales tax approximately $3,800 (8.25% rate on slightly higher spending due to lower income tax). Total state and local tax: approximately $10,100. Annual savings: approximately $3,300 in the first year.
Over a five-year period, the same $120,000 earner saves approximately $16,500 in cumulative tax — meaningful, but not life-changing. However, if their salary grows to $150,000 over those five years (a reasonable trajectory), the annual savings in year five expand to approximately $5,500, and the cumulative five-year savings reach $22,000 to $25,000. The savings accelerate as income grows because income tax scales with earnings while property and sales taxes grow more slowly. This is the core reason Texas disproportionately benefits high and growing earners.
Use our relocation calculator to run your exact numbers with your specific salary, home value, and spending patterns. Compare Texas vs any state to see the detailed tax breakdown side by side. And see our full Texas tax breakdown for a comprehensive look at every tax you will pay in the Lone Star State.