Texas Taxes for H-1B Visa Holders: No Income Tax but Franchise Tax Matters
Texas is one of nine states with no personal income tax, making it one of the most tax-favorable states for H-1B visa holders. On a $180,000 salary, you save roughly $10,000–$15,000 per year compared to California. But "no income tax" does not mean "no taxes" — Texas has high property taxes, a franchise tax for businesses, and sales tax. This guide covers the full Texas tax picture for H-1B holders in Austin, Dallas, Houston, and San Antonio.
Texas has no state income tax return to file
- H-1B holders working in Texas do not file a Texas state income tax return. There is no Form to file and no state withholding on your W-2 wages. Box 15 (State) and Box 17 (State income tax) on your W-2 will be blank or show $0 for Texas.
- You still file your federal Form 1040 with the IRS. The lack of a state return is the entire Texas advantage — your only filing obligation is federal.
- If you moved to Texas from California or New York mid-year, you still owe a part-year state return to your prior state. See the departure year rules below.
What "No Income Tax" Means for H-1B Holders
Texas imposes no personal income tax on any type of income — W-2 wages, 1099 contract income, investment dividends, interest income, capital gains, retirement distributions, and rental income are all untaxed at the state level. This applies to residents regardless of immigration status.
Annual Savings Example
H-1B holder earning $200,000 in W-2 wages with $30,000 in RSU income and $5,000 in Indian bank interest:
| State | Approximate State Tax |
|---|---|
| Texas | $0 |
| California | ~$16,800 |
| New York (NYC resident) | ~$18,500 |
| New York (non-NYC) | ~$12,000 |
This tax savings is the primary reason Texas has become a major destination for H-1B holders, with Amazon, Google, Meta, Oracle, Tesla, and many large employers expanding in Austin, Dallas, and Houston.
Texas Franchise (Margin) Tax
While individuals pay no income tax, Texas does impose a franchise tax (also called the margin tax) on business entities. This is relevant for H-1B households where the H-4 EAD spouse runs a business.
- Who owes it: LLCs, corporations, partnerships, and other business entities registered or doing business in Texas with total revenue exceeding $2,470,000.
- Who does NOT owe it: Sole proprietors filing Schedule C. If your H-4 EAD spouse freelances as a sole proprietor (no LLC), the Texas franchise tax does not apply regardless of revenue.
- Rate: 0.375% for retail and wholesale businesses, 0.75% for all others, calculated on the entity's margin (revenue minus cost of goods sold or compensation, whichever produces a lower margin).
- No-tax-due threshold: Entities with revenue at or below $2,470,000 owe no franchise tax but must still file the franchise tax report (Form 05-163).
Most H-4 EAD freelancers and small business operators will fall below the $2.47M threshold. If you form a Texas LLC, be aware of the annual filing requirement even if no tax is owed.
Texas Property Tax
Texas compensates for the lack of income tax with some of the highest property taxes in the nation. H-1B holders who purchase homes in Texas should factor this into their total tax comparison.
Property Tax Rates by Metro Area
| Metro Area | Effective Rate | Tax on $500K Home |
|---|---|---|
| Austin | ~1.6% | ~$8,000/year |
| Dallas | ~1.9% | ~$9,500/year |
| Houston | ~2.0% | ~$10,000/year |
| San Antonio | ~2.1% | ~$10,500/year |
Texas property taxes are deductible on federal Schedule A, subject to the $10,000 SALT cap. For H-1B homeowners who also have high property taxes, the SALT cap can be a limiting factor.
Sales Tax
Texas has a state sales tax of 6.25%, plus local taxes that bring the combined rate to 8.25% in most metro areas. This applies to tangible goods and certain services. Groceries (unprepared food) are exempt from state sales tax, but restaurant meals and prepared foods are taxed.
Relocating from California or New York to Texas
H-1B transfers from high-tax states to Texas are increasingly common. Key considerations for your departure year:
- California departure: File CA-540NR (Part-Year Resident). California taxes your worldwide income through your departure date, plus CA-sourced income after departure (including RSU vests allocated to CA workdays). See our California Tax Guide for RSU workday allocation details.
- New York departure: File IT-203 (Nonresident and Part-Year Resident). New York taxes NY-sourced income after departure. The convenience-of-employer rule may still apply if you work remotely for a NY-based employer from Texas.
- No Texas return required: You never file a Texas state tax return. Your first year in Texas, your only state filing obligation is the departure-state return.
To cleanly establish Texas residency, update your driver's license, voter registration (if eligible), and vehicle registration to Texas. Terminate your prior state lease and update your bank and employer address records. California in particular scrutinizes departure-year residency claims.
Key Takeaways for H-1B Holders in Texas
- Texas has no personal income tax — W-2 wages, investment income, RSU gains, and retirement distributions are all untaxed at the state level.
- No state tax return is filed. Your W-2 Box 15/17 will show no state withholding for Texas.
- The Texas franchise tax only applies to business entities (LLCs, corporations) exceeding $2.47M in revenue — sole proprietors on Schedule C are exempt.
- Texas property taxes average 1.6%–2.2% — among the highest nationally. Factor this into your total tax comparison when buying a home.
- Moving from CA or NY to TX still requires filing a departure-year return in your prior state. CA is especially aggressive about residency audits.
- No state capital gains tax means RSU/ESPP sales, crypto gains, and stock sales are only taxed at the federal level.
For a broader overview of state taxes, see the State Taxes for H-1B Holders overview. Compare Texas to Washington in the Washington State Tax Guide.
Frequently Asked Questions
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H1B TaxFile Team
Written by the H1B TaxFile editorial team — tax professionals and software engineers who specialize in U.S. federal tax filing for H-1B visa holders, F-1 students, and nonresident aliens.
Reviewed by a licensed CPA with international tax experience.
Disclaimer: This guide is for educational purposes only and does not constitute tax or legal advice. Tax laws are complex and change frequently. Consult a qualified tax professional for advice specific to your situation.