Texas income tax is $0 — the state levies no personal income tax on RSUs, ISO exercises, stock sales, or salary. But federal tax and FICA still apply, and 22% RSU withholding can leave an $16K+ federal gap.
That state-tax savings alone runs into the thousands -- sometimes tens of thousands -- of dollars per year compared to California or New York. But "no state tax" is not the same as "no tax planning needed."
If you work at one of Austin's growing list of tech companies (Tesla, Apple, Google, Meta, Oracle, Dell, Samsung, and hundreds of startups), or at any Texas-based employer that grants RSUs or stock options, you still face the same federal tax challenges as everyone else. And without state taxes to worry about, the federal withholding shortfall becomes the dominant problem.
Texas Income Tax Is Zero on Every Form of Income
This is straightforward: Texas imposes zero state income tax on any form of income. This is enshrined in the Texas Constitution, which prohibits a personal income tax unless approved by voters in a statewide referendum.
What this means for equity compensation:
- RSU vesting income: $0 state tax
- ISO exercises: $0 state tax (and no state AMT)
- Stock option exercises: $0 state tax
- Capital gains from stock sales: $0 state tax
- Bonuses: $0 state tax
There is no supplemental withholding rate, no state brackets to navigate, and no state tax form to file. Your employer withholds $0 for Texas state income tax.
What Texas Employees Still Owe
No state tax doesn't mean no tax. Texas employees owe:
Federal Income Tax (10-37%)
Federal income tax applies identically regardless of your state. RSUs are taxed as ordinary income at your marginal federal rate, and ISOs are subject to federal AMT. The 2026 federal tax brackets range from 10% to 37%.
The chart below shows how the effective RSU tax rate climbs as income rises.
Your Real RSU Tax Rate vs What's Withheld
Single filer, California — salary + RSU vesting
| Salary (USD) | RSU vest (USD) | Effective tax rate (%) | Shortfall vs 22% withholding (USD) |
|---|---|---|---|
| 150000 | 50000 | 42 | 4800 |
| 200000 | 100000 | 47 | 12200 |
| 300000 | 150000 | 50 | 19500 |
| 500000 | 200000 | 53 | 28000 |
FICA Taxes (7.65%)
Social Security tax (6.2% up to the wage base of $176,100 in 2025) and Medicare tax (1.45%, plus 0.9% Additional Medicare Tax on income over $200K) apply to all W-2 income, including RSU vesting.
Federal Estimated Taxes
If your employer withholds only 22% on RSU vesting but your actual marginal rate is 32% or 37%, you'll owe the difference at tax time. This federal withholding shortfall is the same in Texas as it is in California or New York -- it's a federal problem, not a state one.
See our estimated taxes on RSU income guide for details on calculating and paying estimated taxes.
The Texas Advantage for RSUs
The simplest way to see the Texas advantage: compare the total tax on identical RSU vesting income across states.
The chart below visualizes how RSU tax burden differs by state of residence.
State Tax on the Same $100K RSU Vest
$200K salary, single filer — state tax varies by $9,300+
| State | Incremental state tax on $100K RSU (USD) | Effective state rate (%) |
|---|---|---|
| California | 9300 | 9.3 |
| New York | 6850 | 6.85 |
| Texas | 0 | 0 |
| Washington | 0 | 0 |
Example: $200K salary + $150K RSU vesting, single filer
| Tax Component | Texas | California | New York |
|---|---|---|---|
| Federal income tax | $86,535 | $86,535 | $86,535 |
| State income tax | $0 | ~$28,458 | ~$21,028 |
| FICA (Medicare/SS) | $17,343 | $17,343 | $17,343 |
| Total tax | $103,878 | $132,336 | $124,906 |
| Annual savings vs. TX | -- | ~$28,458 | ~$21,028 |
Over a 4-year vesting schedule, the cumulative savings of living in Texas instead of California can exceed $110,000 on the state tax alone. For the mechanics of how each tranche is taxed and withheld locally, see our walkthrough of how RSU vesting and withholding work for Texas employees.
The math is simple: Every dollar of RSU vesting income that would be taxed at 9.3-13.3% in California or 6.85-10.9% in New York is taxed at 0% in Texas. On $150K/year of RSU income, that's $10,000-$20,000 per year in state tax savings.
The Texas Advantage for ISOs
ISOs in Texas get a double benefit:
- No state income tax on exercise. Unlike California (which taxes ISO exercises as ordinary income), Texas charges nothing at the state level when you exercise ISOs.
- No state AMT. Texas has no income tax at all, so there's no state AMT. You only deal with federal AMT.
This makes ISO exercise planning in Texas simpler and cheaper. The only optimization needed is minimizing federal AMT -- there's no state dimension to consider. For a deeper look at how exercising incentive stock options interacts with the AMT for Texas filers, read our guide to the Texas ISO exercise and state AMT picture.
Use our ISO AMT Calculator to plan your exercise strategy. For Texas residents, you can focus entirely on the federal AMT calculation without worrying about state tax implications.
For more on how AMT works and how to minimize it, see our AMT calculator guide for stock options.
Calculate Your ISO AMT
Use our ISO AMT Calculator to find the optimal number of shares to exercise without triggering AMT.
Try Calculator →Roth Conversion Strategy in Texas
Texas's zero state income tax creates a unique opportunity for Roth IRA conversions. When you convert traditional IRA or 401(k) balances to a Roth account, you pay income tax on the converted amount. In Texas, you pay only federal tax -- zero state tax.
Why this matters for equity compensation:
If you have traditional 401(k) balances from previous employers (or your current one), converting to Roth while living in Texas locks in a permanent tax advantage. The converted amount grows tax-free forever, and qualified withdrawals are tax-free -- even if you later move to a high-tax state like California or New York.
Example: Converting $50K from traditional to Roth
| In Texas | In California | In New York | |
|---|---|---|---|
| Conversion amount | $50,000 | $50,000 | $50,000 |
| Federal tax (32% bracket) | $16,000 | $16,000 | $16,000 |
| State tax | $0 | ~$4,650 | ~$3,425 |
| Total tax on conversion | $16,000 | $20,650 | $19,425 |
| Savings vs. TX | — | $4,650 | $3,425 |
If you plan to retire in a state with income tax, the savings compound: you avoid state tax on both the conversion and all future growth. For employees with large 401(k) balances, this can save tens of thousands over a lifetime.
Best years to convert: Years when your equity income is lower than usual (between vesting schedules, during a job transition, or before a large RSU grant starts vesting). Lower total income means a lower federal marginal rate on the conversion.
Federal Withholding: The Problem That Remains
Even with zero state tax, the federal withholding shortfall is substantial and catches many Texas tech employees off guard.
How the shortfall works:
Your employer withholds federal income tax on RSU vesting at the supplemental rate of 22%. But if your total income (salary + RSUs) puts you in the 32% or 37% bracket, you owe the difference.
Example: $200K salary + $150K RSU vesting, single filer
On $350,000 of W-2 income, taxable income after the $15,750 standard deduction is $334,250. Here's the federal tax, bracket by bracket:
| Federal Bracket | Income Range | Tax |
|---|---|---|
| 10% | $0 -- $11,925 | $1,193 |
| 12% | $11,925 -- $48,475 | $4,386 |
| 22% | $48,475 -- $103,350 | $12,073 |
| 24% | $103,350 -- $197,300 | $22,548 |
| 32% | $197,300 -- $250,525 | $17,032 |
| 35% | $250,525 -- $334,250 | $29,304 |
| Total federal tax | ~$86,535 |
Now compare what was withheld:
| Amount | |
|---|---|
| Employer withheld on salary (from W-4) | ~$37,000 |
| Employer withheld on RSUs (22% flat) | $33,000 |
| Total withheld | ~$70,000 |
| Federal shortfall | ~$16,500 |
The RSU income is in the 32-35% bracket, but only 22% was withheld -- creating a ~$16,500 gap. This is purely a federal problem; Texas adds nothing.
Calculate RSU Withholding
Estimate your RSU tax withholding and net proceeds after vesting.
Try Calculator →Don't let "no state tax" lull you into complacency. The federal withholding shortfall for high-income tech employees is $15,000-$40,000+ per year. Missing estimated tax payments can result in underpayment penalties from the IRS. See our RSU tax withholding guide for a full breakdown of how the federal gap works.
FICA Taxes: The Tax Texas Can't Eliminate
Regardless of your state, FICA taxes apply to all W-2 income including RSU vesting. Here's the complete breakdown:
| FICA Component | Rate | Applies To | 2025 Threshold |
|---|---|---|---|
| Social Security | 6.2% | W-2 income up to wage base | $176,100 |
| Medicare | 1.45% | All W-2 income | No cap |
| Additional Medicare | 0.9% | W-2 income over threshold | $200,000 (single) |
Example: $200K salary + $150K RSU vesting ($350K total W-2 income)
| FICA Tax | Calculation | Amount |
|---|---|---|
| Social Security (6.2%) | 6.2% x $176,100 | $10,918 |
| Medicare (1.45%) | 1.45% x $350,000 | $5,075 |
| Additional Medicare (0.9%) | 0.9% x ($350,000 - $200,000) | $1,350 |
| Total FICA | $17,343 |
FICA adds $17,343 to your tax bill -- roughly 5% of total income. This is identical in every state. Texas can't eliminate it, but the $0 state tax means FICA + federal is your entire tax burden.
Property Tax: The Texas Trade-Off
While Texas has no income tax, it has some of the highest property taxes in the country -- averaging around 1.6-1.8% of assessed value, compared to roughly 0.7% in California (where Prop 13 limits increases).
A $500K home in Austin might carry an annual property tax bill of $8,000-$9,000, while a comparable home in the Bay Area might be $3,500-$4,000 (assuming it was purchased recently). The question is: does the income tax savings on equity compensation outweigh the higher property tax?
Breakeven Analysis: Property Tax vs. Income Tax Savings
For a tech employee with a $200K salary and a $500K home:
| RSU Vesting Income | TX Property Tax (extra vs. CA) | CA State Income Tax Avoided | Net TX Advantage |
|---|---|---|---|
| $100K/year | ~$5,500 | ~$9,300 | +$3,800 |
| $200K/year | ~$5,500 | ~$19,600 | +$14,100 |
| $300K/year | ~$5,500 | ~$30,900 | +$25,400 |
The math is clear: for any tech employee with meaningful equity compensation ($100K+ in RSU vesting), the income tax savings in Texas far exceed the additional property tax cost. The breakeven point is roughly $60K in RSU income -- below that, the property tax difference eats most of the savings.
The property tax gap shrinks for expensive homes. On a $1M home, Texas property tax is roughly $16,000-$18,000 vs. $7,000-$10,000 in California. But a $1M home buyer in Texas likely has income well above the breakeven point, so the income tax savings still dominate.
Texas Income Tax Planning Tips for Tech Employees
1. Focus on federal estimated taxes. Without state tax to worry about, your primary planning task is ensuring you don't owe a large federal bill at filing time. Calculate your withholding shortfall and make quarterly estimated payments if needed. Our RSU Calculator shows your exact federal shortfall, and our estimated taxes on RSU income guide walks through safe harbor rules and payment deadlines.
2. Maximize the ISO advantage. Since Texas has no state tax or state AMT, ISO exercises in Texas are strictly a federal AMT optimization problem. Use the ISO AMT Calculator to find the number of shares you can exercise each year without triggering AMT.
3. Consider Roth conversions. If you have traditional IRA or 401(k) balances, converting to Roth while living in Texas means you pay federal tax on the conversion but zero state tax -- a permanent savings if you might retire in a state with income tax later.
4. Don't relocate just for taxes. While the tax savings are real, they should be one factor among many. Cost of living, career opportunities, lifestyle preferences, and family considerations all matter. That said, if two comparable offers differ by $15K/year in state tax savings, that's worth quantifying.
For a comparison across states, see our State Income Tax Guide. For an overview of how RSUs are taxed at the federal level, see our RSU tax rate guide and our guide to how RSUs are taxed.
Calculate RSU Withholding
Estimate your RSU tax withholding and net proceeds after vesting.
Try Calculator →Frequently Asked Questions
Does Texas have state income tax? No. Texas imposes zero state income tax on any form of income. This is enshrined in the Texas Constitution, which prohibits a personal income tax unless approved by voters in a statewide referendum. RSU vesting, ISO exercises, stock sales, salary, and bonuses are all completely free of state income tax.
Do I still owe taxes on RSUs in Texas? Yes -- you owe federal income tax and FICA taxes. Your employer withholds federal tax at the supplemental rate of 22%, but your actual marginal rate may be 32% or 37%, creating a withholding shortfall of $15,000-$40,000+ per year. You also owe Social Security (6.2% up to $176,100), Medicare (1.45%), and Additional Medicare Tax (0.9% on income over $200,000).
What is the property tax trade-off in Texas? Texas has no income tax but has high property taxes averaging 1.6-1.8% of assessed value, compared to ~0.7% in California. For a $500K home, that is roughly $5,500 more per year in Texas. However, the income tax savings on equity compensation ($100K+ in RSUs saves $9,300+ vs. California) more than offsets the property tax difference for most tech employees.
Is Texas really a low-tax state for high earners? For W-2 earners with equity compensation, yes. The zero state income tax saves $10,000-$40,000+ per year compared to California or New York, depending on RSU and ISO income. However, Texas has higher property taxes, sales taxes (6.25% state + up to 2% local), and no personal deductions that other states offer. The net benefit depends on your specific income level, home value, and spending patterns.
Do Texas residents pay FICA on RSU income? Yes. FICA taxes are federal, not state, and apply identically in every state. Social Security tax (6.2%) applies to W-2 income up to $176,100 in 2025. Medicare tax (1.45%) applies to all W-2 income with no cap. The Additional Medicare Tax (0.9%) applies to W-2 income exceeding $200,000 for single filers. On $350K total W-2 income, total FICA is approximately $17,343.
Tax Disclaimer: This content is for educational purposes only. Always consult with a licensed tax professional or certified public accountant before making financial decisions related to equity compensation, tax planning, or investment strategies.