Did you know that Texans pay an estimated $200 billion in federal taxes each year? That’s a hefty price tag for everything from national defense to environmental protection and public health initiatives. And while federal taxes are a fact of life for most Americans, the burden may be disproportionate for Texans in some cases. For example, some taxpayers in high-cost metropolitan areas may pay much more in federal taxes than their counterparts in more rural areas with lower costs of living.
While Texas is often touted as a low-tax state, federal taxes can still take a significant bite out of individuals’ and businesses’ bottom lines here. In fact, Texas is the second most populous state in the U.S., with nearly 30 million residents as of 2021. With such a large population and a diverse economy that includes everything from oil and gas to high-tech manufacturing and agriculture, it’s easy to see why the state would be a major contributor to the federal tax base. And as the federal government considers new policies and priorities in the years to come, it’s likely that Texans will continue to pay their fair share in taxes to support these initiatives.
Federal income tax rates in Texas
Texas is one of the nine states in the United States that doesn’t have an individual state income tax. However, Texans still have to pay the federal income tax rates established by the Internal Revenue Service (IRS). The federal income tax rates in Texas range from 10% to 37% based on one’s taxable income.
- The tax rate of 10% applies to taxable income up to $9,950 for single filers and married individuals filing separately, $19,900 for married individuals filing jointly, and $14,200 for heads of household.
- The rate of 12% applies on taxable income between $9,951 and $40,525 for single filers and married individuals filing separately, $19,901 and $81,050 for married individuals filing jointly, and $14,201 and $54,200 for heads of household.
- The tax rate of 22% applies on taxable income between $40,526 and $86,375 for single filers and married individuals filing separately, $81,051 and $172,750 for married individuals filing jointly, and $54,201 and $86,350 for heads of household.
In the same order, the tax rate of 24%, 32%, 35%, and 37% applies to the following taxable income thresholds for these groups of taxpayers:
- Single filers and married individuals filing separately: $86,376 to $164,925; $164,926 to $209,425; $209,426 to $523,600; and over $523,600.
- Married individuals filing jointly: $172,751 to $329,850; $329,851 to $418,850; $418,851 to $628,300; and over $628,300.
- Heads of household: $86,351 to $164,900; $164,901 to $209,400; $209,401 to $523,600; and over $523,600.
It’s worth noting that these federal income tax rates apply to taxable income, which is calculated by subtracting deductions and exemptions from gross income. Additionally, the IRS offers tax credits, which reduce your tax liability dollar for dollar, and are not related to your taxable income.
Common deductions for Texas taxpayers
When it comes to paying federal taxes, Texans might be better off than residents of other states due to the lack of a state income tax in Texas. However, there are still plenty of common deductions that Texas taxpayers can take advantage of to reduce their federal tax bills.
- Standard deduction: For those who don’t itemize their deductions, the standard deduction is a way to reduce their taxable income. For tax year 2020, the standard deduction for single filers is $12,400, and for married filing jointly, it’s $24,800.
- Itemized deductions: If you choose to itemize, you can deduct certain expenses, such as state and local taxes (up to $10,000), charitable donations, mortgage interest, and medical expenses that exceed 7.5% of your adjusted gross income.
- Business expenses: If you’re self-employed or have a side business, you can deduct expenses related to your business, such as home office expenses, travel, and equipment purchases.
Tax Credits for Texas taxpayers
In addition to deductions, tax credits can also help Texans lower their federal income tax bills. A tax credit is a dollar-for-dollar reduction in the amount of taxes you owe. Here are some common tax credits:
- Earned Income Tax Credit: This credit is for low- to moderate-income earners. For the tax year 2020, the maximum credit you can receive is $6,660.
- Child Tax Credit: This credit is available to taxpayers with children under 17 years old. The credit is up to $2,000 per child, and up to $1,400 of that amount can be refundable.
- Saver’s Credit: If you contribute to a retirement account, such as an IRA or 401(k), you may be eligible for the Saver’s Credit. The credit is up to $1,000 for single filers and up to $2,000 for married filing jointly.
Texas-specific Deductions and Credits
While Texas doesn’t have a state income tax, there are some tax deductions and credits that are specific to Texas:
- Texas Homestead Exemption: This exemption can reduce the taxable value of your home by up to $25,000 for school district taxes and up to 20% of the appraised value of your home for other taxes.
- Texas Sales Tax Deduction: Texans can deduct state and local sales tax paid on items like cars, boats, and home improvements.
| Credit | Description | Amount |
|---|---|---|
| Property Tax Appraisal Cap | Limits the amount that the value of homestead property for tax purposes can increase each year. | N/A (varies by county) |
| Disabled Veteran Exemption | A property tax exemption available to veterans who have service-related disabilities. | Up to $12,000 of the appraised value of the property |
| Agricultural and Timber Use Exemption | Available to landowners who use their land for farming or timber production. | Varies depending on the type of land and its use. |
By taking advantage of these deductions and credits, Texans can reduce their federal tax bills and potentially lower their overall tax burden.
Sales tax rates in Texas
When it comes to taxes in Texas, sales tax is a major player. Texas has a state sales tax rate of 6.25%, but that’s not the whole story. Counties, municipalities, and transit authorities can add their own sales tax rates on top of that, leading to a range of sales tax rates throughout the state.
- Local sales tax rates in Texas range from 0% to 2%, with the average being around 1.37%.
- In addition to local sales taxes, certain items may also be subject to special sales tax rates. For example, Texas has a higher sales tax rate for rental cars, alcoholic beverages, and certain types of clothing.
- Texas also has a use tax, which is essentially a way for the state to collect sales tax on items purchased out of state but used in Texas. The use tax rate is the same as the sales tax rate.
Sales tax revenue in Texas
Sales tax revenue is a significant source of income for Texas. In fact, it’s the largest source of tax revenue for the state, comprising about 58% of all state tax collections in fiscal year 2019.
This revenue is used to fund a variety of programs and services throughout the state, including education, transportation, law enforcement, and healthcare.
Comparison of Texas sales tax rates to other states
When compared to other states, Texas’ sales tax rates are generally in the middle of the pack. According to the Tax Foundation, Texas has the 24th highest rate among the 50 states. However, when you factor in local sales taxes, some parts of Texas can have significantly higher rates. For example, in some areas of Harris County (which includes Houston), the total sales tax rate can reach 8.25%.
Here is a comparison of the state sales tax rates (not including local rates) for Texas and a few other states:
| State | Sales tax rate |
|---|---|
| California | 7.25% |
| Florida | 6% |
| New York | 4% |
| Texas | 6.25% |
It’s worth noting that some states don’t have a sales tax at all, such as Alaska, Delaware, Montana, New Hampshire, and Oregon.
Property taxes in Texas
If you own property in Texas, one of the main taxes you’ll have to pay is property tax. This tax is levied by local governments, such as counties, cities, and school districts, and the money collected is used to fund local services and infrastructure projects. In Texas, property owners pay among the highest property taxes in the country, with an average effective property tax rate of 1.81%.
- Homeowners in Texas pay an average annual property tax bill of $4,560, which is more than $1,500 higher than the nationwide average.
- Commercial property owners in Texas also face high property tax bills, with the state having the third-highest effective tax rate on commercial property in the country.
- Property taxes in Texas are based on the appraised value of the property, with local appraisal districts assessing the value. Property owners have the right to challenge the assessment if they believe it is too high.
The high property tax rates in Texas have been a point of concern for many property owners, especially those on a fixed income or with limited financial resources. The state government has tried to address the issue by proposing bills to cap property tax rates or increase tax exemptions for certain groups, but so far, these measures have not had much success.
Below is a table showing the effective property tax rates in Texas for different types of property:
| Property Type | Effective Tax Rate |
|---|---|
| Residential | 1.81% |
| Commercial | 1.90% |
| Industrial | 2.02% |
| Agricultural | 1.56% |
As you can see, property owners in Texas pay a significant amount in property taxes each year. It’s important to keep this in mind when budgeting for homeownership or when considering investment properties in the state.
Excise taxes in Texas
Texas, like any other state, also imposes several types of taxes on goods and services beyond its sales tax. Referred to as excise taxes, these taxes are often levied on specific goods or services at the time of purchase or consumption. The collected revenue from these taxes is usually dedicated to funding government programs and services.
- Fuel taxes: Texan motorists pay state taxes on motor fuels such as gasoline and diesel. In Texas, the fuel excise tax rate is among the lowest state fuel tax rates in the US at 20 cents per gallon.
- Tobacco taxes: Texas levies an excise tax on cigarettes, cigars, and other tobacco products. As of 2021, the tax rate on cigarettes is $1.41 per pack of 20 cigarettes, the 17th highest cigarette tax in the country.
- Alcohol taxes: The excise tax on beer in Texas is $0.20 per gallon, while the excise tax on wine is $0.40 per gallon. The liquor tax is $3.44 per gallon for beverages that contain more than 14% of alcohol.
Other notable excise taxes in Texas include taxes on:
- Hotel and motel room occupancy
- Amusement rides and games
- Fireworks
- Certain motor vehicle sales and leases
It’s worth noting that excise taxes are usually included in the final price of the product or service, making them less noticeable to consumers. However, over time, these taxes can add up and significantly impact an individual’s spending power.
| Excise Tax Type | Tax Rate |
|---|---|
| Fuel taxes | 20 cents per gallon |
| Cigarette taxes | $1.41 per pack |
| Beer taxes | $0.20 per gallon |
| Wine taxes | $0.40 per gallon |
| Liquor taxes | $3.44 per gallon for alcohol >14% |
Overall, excise taxes are a significant source of revenue for the state of Texas. While the rates may not be as high as some of the other states, it’s essential for taxpayers to be aware of these taxes and their impact on their expenses.
Texas contributions to federal taxes
When it comes to federal taxes, Texas is one of the states that contributes the most to the federal government. In fact, Texas is consistently one of the top states in terms of federal taxes paid every year.
Here are some key facts about Texas and its contributions to federal taxes:
- According to the US Census Bureau, Texas residents contributed over $265 billion in federal taxes in 2019 alone, making it the second-highest state for federal tax contributions behind California.
- Texas is home to four of the top 20 metropolitan areas in terms of federal tax contributions: Houston, Dallas-Fort Worth, San Antonio-New Braunfels, and Austin-Round Rock.
- Furthermore, Texas is also one of the top states for corporate income tax revenue, with companies like ExxonMobil and AT&T contributing significantly to federal tax revenue.
But why is Texas such a big contributor to federal taxes? There are a few reasons:
- Firstly, Texas has a large population, which means there are more people paying taxes. In fact, Texas has the second-highest population in the US after California.
- Secondly, Texas has a strong economy, with industries like oil and gas, technology, and healthcare driving growth and job creation. This means more people are earning higher incomes and paying more in taxes.
- Thirdly, Texas is a relatively low-tax state, which means its residents and businesses may have more disposable income to put towards federal taxes.
Overall, Texas is a significant contributor to federal taxes, thanks to its large population, strong economy, and low-tax environment. Whether this will continue in the future remains to be seen, but for now, Texas is certainly doing its part to support the federal government.
| Rank | State | Total Federal Taxes Paid (billions) |
|---|---|---|
| 1 | California | $405.5 |
| 2 | Texas | $265.3 |
| 3 | New York | $244.9 |
| 4 | Florida | $188.8 |
| 5 | Pennsylvania | $111.7 |
Sources:
- US Census Bureau – Texas Statistical Snapshot
- WalletHub – States Most Dependent on the Federal Government
Tax reform impact on Texas taxpayers
The Tax Cuts and Jobs Act (TCJA) of 2017, commonly referred to as the Tax Reform, has had a significant impact on Texas taxpayers. Here are seven ways in which the tax reform affected Texans:
- The standard deduction has doubled, which means that fewer taxpayers will itemize deductions. This simplified the tax filing process for many Texans, and increased their take-home pay.
- The personal exemption was eliminated, but this was offset by the increase in the standard deduction. Most Texans saw a net tax cut.
- The child tax credit increased from $1,000 to $2,000 per child, with more taxpayers being eligible for the credit.
- The state and local tax (SALT) deduction was capped at $10,000, which affected many high-income Texans who used to deduct more than that amount from their federal taxes.
- The mortgage interest deduction was limited to mortgages up to $750,000 (down from $1 million), which may have impacted some Texans who own high-value properties.
- The alternative minimum tax (AMT) exemption was increased, which meant that fewer Texans were subject to the AMT. This was a relief for many high-income taxpayers who used to pay the AMT.
- The tax brackets were adjusted, with most Texans seeing a lower rate on their income.
Overall, the tax reform provided Texans with a net tax cut, with the majority of taxpayers seeing an increase in take-home pay. However, the cap on the SALT deduction and the limit on the mortgage interest deduction may have impacted some high-income Texans, particularly those living in expensive real estate areas.
Here’s a table summarizing the changes in tax brackets for single filers, married filing jointly, and head of household:
| 2017 Tax Brackets | 2018 Tax Brackets |
|---|---|
| $0 – $9,325 | $0 – $9,525 |
| $9,326 – $37,950 | $9,526 – $38,700 |
| $37,951 – $91,900 | $38,701 – $82,500 |
| $91,901 – $191,650 | $82,501 – $157,500 |
| $191,651 – $416,700 | $157,501 – $200,000 |
| $416,701 – $418,400 | $200,001 – $500,000 |
| $418,401+ | $500,001+ |
It’s important to note that the tax rates and brackets are subject to change depending on future policy decisions made by the federal government.
How Much do Texans Pay in Federal Taxes?
Q: How does the federal tax system work?
A: The federal tax system is designed to collect taxes from individuals and businesses operating within the United States.
Q: How are federal taxes calculated?
A: Federal taxes are calculated based on a number of factors, including income, marital status, and number of dependents.
Q: How much does the average Texan pay in federal taxes?
A: The average Texan pays around $9,000 in federal taxes each year.
Q: What deductions are available to Texans when calculating federal taxes?
A: Texans can take advantage of a number of deductions when calculating federal taxes, including deductions for mortgage interest, charitable contributions, and healthcare expenses.
Q: What is the tax rate for Texans at different income levels?
A: The tax rate for Texans varies depending on income level, with higher-income earners generally paying a higher percentage of their income in federal taxes.
Q: How do federal tax rates for Texans compare to those of other states?
A: Federal tax rates for Texans are generally in line with those of other states, although differences may arise based on individual factors such as income level and filing status.
Closing Thoughts
Thanks for reading our article on how much Texans pay in federal taxes! While the federal tax system can be complex and confusing, we hope this information helps clarify some of the key aspects of federal taxation in Texas. For more information on financial and tax-related topics, be sure to check out our website again in the future.