Tax Relief in Texas: What to Know About Back Taxes
Texas has no personal income tax. If you owe back income tax while living here, that debt is federal, and the tools that fix it are IRS programs. Here is the full picture.
This page is for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently. Consult a qualified tax professional for advice specific to your situation.
Texas has no personal income tax, so if you are an individual who owes back income tax while living here, that debt is federal. It belongs to the IRS, not to Austin.
What makes Texas different
No state income tax, so individual tax debt in Texas is federal IRS debt
Texas is one of a handful of states with no personal income tax, a rule locked into the state constitution by a 2019 voter-approved amendment. That means an individual who owes back income tax in Texas owes it to the IRS, not to Austin, and the relief tools that matter are federal ones such as IRS installment agreements, Offer in Compromise, penalty abatement, and Currently Not Collectible status. The Texas Comptroller of Public Accounts does collect other taxes, most notably the 6.25 percent state sales and use tax and the franchise (margin) tax on businesses, so business owners can have genuine state tax debt even though households do not owe state income tax. Separately, Texas has some of the highest local property taxes in the nation, but those are billed and collected by county appraisal districts and local tax offices, not by the Comptroller.
What 'no income tax' really means in Texas
What tax debt in Texas actually looks like
For individuals, there is no Texas income tax bill to fall behind on, so personal back-tax debt in Texas is almost always federal IRS debt. The taxes the Texas Comptroller administers fall mainly on businesses and transactions: the 6.25 percent state sales and use tax (up to 8.25 percent with local add-ons) and the franchise, or margin, tax. Sales tax debt is common because a business that collects sales tax from customers and does not remit it is holding money that belongs to the state, and the Comptroller pursues that aggressively. Property tax delinquency, which many Texans experience given high local rates, is handled by county tax offices and appraisal districts rather than the Comptroller.
How the Comptroller charges penalties and interest
On past-due state taxes such as sales and franchise tax, the Comptroller adds a 5 percent penalty when payment is 1 to 30 days late and a 10 percent penalty when it is more than 30 days late. If you pay after the date shown on a Notice of Tax or Fee Due, an additional 10 percent applies, for a total penalty of up to 20 percent, and there is a separate 50 dollar penalty for each report filed late even when no tax is due. Interest starts accruing on the 61st day after the due date at a variable annual rate set at the Wall Street Journal prime rate plus 1 percent. That rate was 8.50 percent for 2025 and 7.75 percent for 2026.
Franchise (margin) tax debt for Texas businesses
The Texas franchise tax is a privilege tax on entities doing business in the state, calculated on a margin base rather than on income. For the 2025 report year the no-tax-due threshold was 2.47 million dollars of annualized total revenue, rising to 2.65 million dollars for 2026, so many small businesses owe no franchise tax but must still file information reports. Entities above the threshold generally pay 0.75 percent, or 0.375 percent for those primarily in retail or wholesale, and an E-Z Computation option taxes at 0.331 percent for entities with 20 million dollars or less in revenue. Missing franchise reports can lead to loss of the right to do business in Texas and to forfeiture of corporate privileges, which is a serious consequence beyond the tax itself.
Comptroller collection powers if you do not resolve a state debt
State law requires that past-due taxes, penalties, and interest owed to Texas be secured by a lien, and the Comptroller can file that lien in county records once a liability is final. In cases where state funds are believed to be at risk from insolvency or fraud, the Comptroller can issue a jeopardy determination and file liens immediately. After other collection efforts are exhausted, the Comptroller has authority to seize and sell nonexempt real and personal property, and the state can place holds on payments owed to a delinquent taxpayer. Because these actions escalate quickly, contacting the Enforcement Division at 800-252-8880 before enforcement begins is the practical first step for a business that owes state tax.
Ways to resolve a Texas balance
- Payment Agreement (Enforcement Division)
- The Comptroller's Enforcement Division considers payment plans on a case-by-case basis to avoid undue hardship. There is no standardized online application for state business taxes; you contact your local Comptroller field office or call 800-252-8880 with your 11-digit Taxpayer ID. Note that even while on a payment plan the account stays delinquent, so a lien may still be filed and any state warrant holds can remain.
- Penalty Waiver Request
- Texas allows businesses to request a waiver of penalties (and in some cases the associated interest) for late reports or payments if there was reasonable cause and a compliant filing history. Requests are made using Form 89-224 or 89-225 through the Comptroller's Penalty Waiver process. Waivers cover penalties, not the underlying tax owed.
- Voluntary Disclosure Agreement (VDA)
- For businesses that have unreported or underreported Texas tax and have not yet been contacted or audited, the Comptroller's Business Activity Research Team (BART) offers a VDA that waives statutory penalties and generally interest (except interest on tax that was collected but not remitted), with a limited four-year lookback for most tax types. Initial contact can be anonymous, and a Fast-Track option exists for taxpayers who have already calculated what they owe.
- No State Offer in Compromise for Income Tax
- Because Texas has no personal income tax, there is no state individual income-tax settlement or offer program. Individuals who owe income tax debt in Texas owe it to the IRS, and federal relief options such as the IRS Offer in Compromise, IRS installment agreements, and Currently Not Collectible status apply instead of any state program.
Texas tax debt questions
Does Texas have a state income tax I could owe back taxes on?
No. Texas does not tax individual income, and a 2019 constitutional amendment bars the state from creating one. If you owe back income tax while living in Texas, that debt is federal and owed to the IRS, so you would look at IRS relief options such as an installment agreement, Offer in Compromise, penalty abatement, or Currently Not Collectible status rather than any state program.
What kinds of tax debt can I actually owe the state of Texas?
The Texas Comptroller collects state taxes that fall mostly on businesses and transactions, including the 6.25 percent sales and use tax and the franchise (margin) tax, as well as fuel, motor vehicle, and various excise taxes and fees. So business owners can owe genuine state tax debt in Texas even though households do not owe state income tax.
How much are penalties and interest on past-due Texas sales or franchise tax?
The Comptroller adds a 5 percent penalty if you pay 1 to 30 days late and 10 percent if you pay more than 30 days late, plus an additional 10 percent (up to 20 percent total) if you pay after the date on a Notice of Tax or Fee Due, and 50 dollars for each late report. Interest starts on the 61st day after the due date at prime plus 1 percent, which was 8.50 percent in 2025 and 7.75 percent in 2026.
Can I set up a payment plan with the Texas Comptroller?
The Comptroller's Enforcement Division considers payment plans case by case to avoid undue hardship. There is no standard online application for state business taxes, so you contact your local field office or call 800-252-8880 with your 11-digit Taxpayer ID. Keep in mind the account stays delinquent while on a plan, so a lien may still be filed.
Why is my property tax bill so high if Texas has no income tax?
Texas funds much of local government through property taxes rather than an income tax, and Texas property tax rates are among the highest in the country. Those taxes are billed and collected by county appraisal districts and local tax offices, not by the Texas Comptroller, so property tax delinquency is handled at the local level with its own penalty, interest, and collection rules.
My business never reported some Texas sales tax. Is there a way to fix it?
Texas offers a Voluntary Disclosure Agreement through the Comptroller's Business Activity Research Team for businesses that have not yet been contacted or audited. It waives statutory penalties and generally interest, except interest on tax you collected but did not remit, and limits the lookback to about four years for most taxes. Initial contact can be anonymous, which lets you evaluate the program before committing.
Sources and further reading: Texas Comptroller of Public Accounts, Penalties for Past Due Taxes, Interest Owed and Earned, Franchise Tax, Sales and Use Tax, Voluntary Disclosure Program (Pub 96-576), Penalty Waivers. Rates and rules change; confirm current figures with the Texas Comptroller of Public Accounts before you rely on them.
Tax Relief in Other States
More states coming soon.