Social Security, pension, IRA distributions, capital gains, rental income — how Texas treats every dollar and what it means for your retirement budget
Texas has no state income tax. Zero. On every source of retirement income. No exceptions, no phase-outs, no income thresholds above which the exemption phases out. Every dollar you receive — from every source — is not taxed at the state level in Texas. This section exists to confirm that every specific income type you are wondering about is included in “all income”.
| Income Source | Texas State Tax | Notes |
|---|---|---|
| Social Security benefits | $0 — fully exempt | No means testing, no income threshold — 100% exempt |
| Traditional IRA distributions | $0 — fully exempt | Federal ordinary income tax still applies |
| 401(k) and 403(b) distributions | $0 — fully exempt | Federal ordinary income tax still applies |
| Roth IRA distributions | $0 — fully exempt | Also federally exempt if rules met |
| Pension / defined benefit | $0 — fully exempt | Private, state, federal, or military pension — all exempt |
| Military retirement pay | $0 — fully exempt | No partial exemption — 100% exempt |
| Long-term capital gains | $0 — fully exempt | Federal tax still applies (0%, 15%, or 20%) |
| Rental income | $0 — fully exempt | Federal ordinary income tax still applies |
| Annuity income | $0 — fully exempt | Federal treatment varies by annuity type |
| Interest and dividends | $0 — fully exempt | Federal tax still applies |
Eliminating Texas state income tax does not affect your federal tax obligation. IRA distributions, pension income, and capital gains are still subject to federal tax. Social Security may be partially taxable at the federal level depending on your combined income. The Texas advantage is the state layer only — but for residents of NJ (up to 10.75% state rate), IL (4.95%), NY (up to 10.9%), or CA (up to 13.3%), the state layer is substantial.
The practical effect: a Texas retiree with $150,000 in annual retirement income keeps $6,000–$15,000 more per year in after-tax income than an identical retiree in a high-tax state. Over 20 years, that compounds to $120,000–$300,000 in cumulative additional income available for spending, investment, or gifting.
| Income Type | Federal Tax? | Texas State Tax? |
|---|---|---|
| Social Security (up to 85%) | Yes — partial (up to 85% of SS taxable at federal) | No |
| IRA / 401(k) withdrawals | Yes — ordinary income rates | No |
| Long-term capital gains | Yes — 0%, 15%, or 20% depending on income | No |
| Pension income | Yes — ordinary income rates | No |
Tell us your income sources and we can estimate your federal tax position and compare it to your current state.
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