Every state has a different tax system. After you pay federal income taxes, there are still tax bills left to pay for state, property, sales, excise, and gift taxes. Knowing which tax types apply to you, especially once you own a home, can help you set a budget or develop the best strategy for managing and paying those taxes.
Texan homeowners, for example, regularly pay some of the highest property taxes out of any other state, often ranking fifth or sixth in the nation. Of course, federal income taxes and Texas property taxes aren’t the only tax bills residents of the state have. But what taxes do homeowners pay in Texas, and what should everyone know about them?
Knowing the source of the taxes, what they go toward, and how they’re calculated and collected can help you manage tax obligations more proactively. In this guide, we’ll walk through the taxes Texas homeowners do and do not pay, what you need to know about the processes behind property taxes, and recent legislative moves that may drastically impact your tax bill for next year.
What Taxes Do Homeowners Pay in Texas? (And 2 Taxes You Don’t Pay)
Tax payment deadlines—and the additional costs they bring you—can sneak up on you. That’s why it’s essential to know the various sources of taxation that can affect you in Texas. Armed with this foreknowledge, you can set up a more detailed budget, ensure you have the funds before the next deadline, and take any available steps to pursue tax relief or lower your tax obligation. To get started, let’s look at what taxes homeowners do pay in Texas and some that they don’t.
Texas Taxpayers Do Not Pay a State Income Tax
Over forty states in the United States charge a state income tax on top of federal income taxes. These states have a bracketed tax system, charging an income tax rate of between 1 and 10% based on income. State income taxes are used to fund state government projects and budgets. The US Census calculated the median household income across the country at $70,784, which leads to approximately $700-$7,000 in state income tax payments based on location. Texans do not have this tax obligation.
Texas Taxpayers Do Not Pay a State-Level Property Tax
Similarly, other states may have a state-level property tax. This tax is managed at the state level, with the Comptroller’s office determining the tax rate, the property valuations of each home, and handling collections and enforcement. While Texans do have a property tax, it is dealt with at the local government level. We take a closer look at this in the next section.
Texas Taxpayers Do Pay a Local-Level Property Tax
What taxes do homeowners pay in Texas at the local level? Rather than having a state-level property tax that funds the state government and large regional projects, Texans have a property tax administered at the county or city level to finance the city or county government’s budget. This includes payment for construction and maintenance projects, school district funding, paying for emergency services (ex., police, firefighters, and emergency medical teams), and more.
Related: House Prices and Property Taxes: How Are They Related?
While the state establishes the rules of property taxes—such as exemptions, notices and filing procedures, and general appraisal norms—the local government manages the actual process. They can set specific tax rates for different levies, determine which optional exemptions to allow, and handle appraisals, collections, and appeals. As a result, the tax rates will vary from county to county and city to city. For example, within Collin County (a suburban county north of Dallas), residents of Wylie paid a 2022 1.3979% tax rate for Wylie ISD, while residents in nearby Plano paid 1.25975% for their school district.
The average property tax rate in Texas is around 1.60%. But a lot of different factors can impact your property tax rate, including:
- Exemptions that protect part of your property from tax calculations, thereby lowering your effective tax rate
- Location
- Type of property (for example, agricultural properties are calculated differently from general homes, even if the land has a house on it)
Texas Taxpayers Also Pay a State and Local-Level Sales Tax
There’s another hefty tax that all Texans pay: sales tax. This tax is technically two, but they often appear as the same line item on receipts and invoices. Sales taxes are composed of a state-level tax rate of 6.25%. This money goes toward state revenue.
Smaller tax jurisdictions like cities and counties can also add a sales tax of 2% or less to this amount. The Texas sales tax is generally about 8.25%, but that rate can vary based on location. While this tax is usually paid at the point of purchase, it can make up a significant portion of your budget.
The Impact of Not Having a State-Wide Property Tax or Personal Income Tax
The most significant impact of not having state-level property taxes is that the process is handled locally. Some of the results that you will experience as a taxpayer include the following:
- Who you interact with: Filing forms, appealing decisions, and protesting your property taxes will all move through the local tax jurisdiction.
- Different tax rates: What taxes do homeowners pay in Texas across other regions or tax jurisdictions? While some state-wide norms control for variations in property tax rates (such as local governments not being allowed to increase property tax-collected revenue by more than 3.5% without voter approval), the rates for different levies are largely up to local government determination.
- The tax funds are used locally: The funds collected through local taxes are put toward local projects and budgets. Your taxes will be split amongst these potential levies: your local school district, the local junior college or community college organization, the city government, or the state government. However, exceptions exist, such as reallocating excess school district funds through the 1993 Robin Hood plan.
Ultimately, this means living in other areas of Texas costs different amounts, even if you just consider taxes. A homeowner with a $300,000 home in McAllen will have a different tax bill than someone with a $300,000 home in Abilene.
How Property Taxes Are Collected Across Texas
Despite the rate determinations, calculations, and enforcement being handled locally, the process is similar across different tax jurisdictions. It follows these basic steps:
- Your tax appraisal district will determine the value of your home. If it changes by more than $1,000, you will receive a Notice of Appraised Value in the spring. If you believe the valuation of your home is too high or there are other errors, you can start the official protest process.
- The tax bill notices are sent out in the fall by your county tax assessor, and these documents have the total you will pay.
- Property tax payment is due by the following January 31st. Taxes are collected annually, though various payment plans and extensions are available for qualifying individuals.
- Homeowners can file for exemptions that protect a portion of their home’s value from tax calculations across the different levies. For example, a homestead exemption removes $40,000 of your home’s value from calculating school district taxes owed. Check with your local tax jurisdiction for specific deadlines and filing requirements.
Related: 7 Key Things You Should Know About Homeowner Taxes in Texas
Most homeowners in Texas have an escrow account through their mortgage holder if they still owe money on the property. Each month, your mortgage holder will send you a bill for the monthly principal and interest payment for your home, a portion of your home insurance premium, and a portion of your anticipated property tax bill. Those funds are held in escrow as they accumulate throughout the year, and then your services provider will issue the payment to the appropriate tax jurisdiction office.
What Taxes Do Homeowners Pay in Texas Now, and How Will That Change in the Future? Recent Legislation That May Impact The Taxed You Owe in Texas
While taxes are managed locally, the state government can pass legislation that affects the process across the state. Recently, the Texas Senate passed bills addressing the growing property tax crisis. If the House passes these measures in November and Governor Abbott signs them, people can will these changes in what taxes homeowners pay in Texas:
- Exemptions: Homestead exemption amounts will change from $40,000 to $70,000, and over-65 exemptions will protect an additional $20,000
- School district funding: The state surplus will cover a portion of school budgets, and the property tax rate for schools will decrease by 7 cents per $100 in property value.
Protest Your Property Tax Bill and Make Sure You’re Paying a Fair Amount
The mechanics behind how property taxes are calculated and what they pay for can be complicated, and you may end up with a Notice of Appraised Value that you don’t think is accurate. If that’s the case, every homeowner in Texas has the right to protest their property taxes, offer a counter valuation, and present their argument in front of a hearing panel. At Home Tax Shield, we’re here to help. Our team can manage the filing process, assess the value of your home, and fight for you to have fair property taxes on your behalf. Sign up today to get started.