Arizona vs Texas: Taxes & Take-Home Pay 2026

Phoenix or Dallas: a small income tax against a big property tax

Arizona's flat 2.50% income tax is the lowest flat rate of any state that taxes wages, which makes this the closest of the Texas comparisons. Arizona's property taxes are also generally far lower than Texas's, which often offsets the income tax for homeowners.

People compare these two Sun Belt states when relocating for jobs in the Phoenix, Tucson, Dallas-Fort Worth, Austin and Houston metros, and retirees compare them for warm weather without a high state tax. Both are growing fast, and both collect sales tax well above the national middle.

How each state taxes a paycheck

At $85,000, a single Arizona worker owes $1,731 of state income tax, about 2.04% of gross pay. A married couple with two children on $120,000 owes $1,963 after the joint standard deduction and two $125 child credits. In Texas both households owe $0.

• Arizona: one rate, 2.50%, on Arizona taxable income. The 2026 standard deduction is $15,750 single, $31,500 joint and $23,625 head of household under HB 4168.
• Arizona dependent credit: $125 per child under 17 from 2026.
• Arizona withholding is a percentage of gross pay that you choose on Form A-4, so two coworkers on the same salary can see different Arizona deductions.
• Texas: no state income tax, no state withholding form and no employee-paid state payroll programs.
• Neither state has city or county income taxes, and neither has a state disability or paid-leave payroll deduction.

Sales tax: Arizona's TPT against Texas's cap

Arizona's sales tax is technically a transaction privilege tax charged to the seller, who passes it on. The state rate is 5.60% and the average combined rate is 8.54%, compared with 8.20% in Texas. Arizona combined rates can reach 10.90%, while Texas law caps local add-ons so no rate exceeds 8.25%.

For a household that spends $30,000 a year on taxable goods, the average-rate difference is about $102 a year more in Arizona. Food for home consumption is exempt from Arizona's state TPT under ARS §42-5102, so the gap is smaller for households whose spending is mostly groceries; check the city rate on food where you would live.

Property tax: the reason Arizona often wins for homeowners

Texas has no income tax partly because local governments collect heavily on property. School districts must exempt $140,000 of a homestead's value, plus another $60,000 for owners 65 or older or disabled, but the remaining value is taxed at combined rates that are among the highest in the U.S. Arizona's property taxes are generally much lower.

A rough way to compare: multiply the Arizona income tax you would pay by one, and compare it with the difference between the total property tax rates on the two homes you are actually considering. Ask the Texas seller or title company for the current tax bill and check the exemptions already applied, because a new owner's homestead exemption does not start until they apply.

Retirees: how Arizona treats pensions and Social Security

Arizona subtracts Social Security and railroad retirement benefits in full, and since 2021 it subtracts all U.S. uniformed services retired pay. Government pensions (federal, Arizona state, county, city and town) qualify for a subtraction of up to $2,500 in total. Private pensions, IRA and 401(k) withdrawals are taxed at the flat 2.50%.

Example: a single retiree with $50,000 of IRA withdrawals and Social Security would owe roughly $856 of Arizona tax after the standard deduction, before Arizona's $2,100 exemption for filers 65 or older and other adjustments. In Texas the state income tax is zero, but the same retiree's property tax on a paid-off house could exceed that within a few months of the year.

Commuting, remote work and the year you move

Moving from Arizona to Texas, you file an Arizona part-year resident return (Form 140PY) reporting income while you lived in Arizona plus any Arizona-source income afterwards. Moving the other way, Arizona taxes your income from the day you become a resident, and Texas has no return to close out.

If you live in Texas and work remotely for an Arizona employer, wages for work you physically do in Texas are generally not Arizona-source. Arizona also exempts from withholding a nonresident who works in Arizona for less than 60 days in a calendar year for an employer that has property, payroll and sales in Arizona. Arizona's credit for taxes paid by nonresidents does not help Texans, because Texas has no income tax to credit.