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What You Need to Know about Taxes in Houston 

What You Need to Know about Taxes in Houston

Everything has taxes, whether it’s a haircut at the barbershop, glasses at the optometrist, or street tacos. Despite being unavoidable, though, taxes aren’t fixed.

Different states have different tax rates. The tax rate can also change depending on what type of tax you’re paying. 

Today, we’ll talk about the taxes in Houston in particular.

What is the sales tax rate in Houston?

What is the sales tax rate in Houston

As of the year 2022, the sales tax rate for Houston is 8.25%. Keep in mind that this is the total for county, city, and state sales tax rates.

Currently, the Texas sales tax rate is 6.25%. While Houston’s sales tax rate is 1%, the county sales tax rate is 0%.

Does Houston have an income tax?

Does Houston have an income tax

No. Houston does not have an income tax. Since Texas is one of the only eight states without an income tax, almost all of the taxes paid are sales taxes.

Of course, there are other different types of taxes that people pay to consider. 

Did the COVID-19 pandemic affect sales tax filing in Houston? 

Did the COVID-19 pandemic affect sales tax filing in Houston

When the COVID-19 pandemic began, everyone took a break from going out to places like luxury spas and upscale steakhouses.

Instead, they started getting more home and delivery services. Think: flower delivery and takeout. 

These still involved sales. So, taxes were still being paid throughout the pandemic. 

However, the outbreak of COVID-10 did affect Houston’s sales tax filing. 

Because of the delays, many businesses during this time had to make cutbacks in companies if they couldn’t keep track of their real-time sales tax rates. 

What should I know about the Texas Franchise Tax? 

What should I know about the Texas Franchise Tax

Although Texas does not have an individual income tax, it does have a franchise tax of 0.375%. Another name for franchise tax is privilege tax. 

Franchise tax/privilege tax is a type of income tax based on total business revenues. For businesses to be held accountable, the revenue must exceed 1.23 million in the years 2022 and 2023.

This tax applies to wholesalers and retail businesses. For nonexempt businesses, this rate increases to 0.75%.

Every year franchise tax reports are due in the middle of May. Usually, the date falls on May 15 or the next business day if it’s a weekend or a holiday.

Any interest from previous franchise tax debts begins piling up 60 days after the due date. If you forget to pay your taxes, you can be fined a 10% penalty after 30 days.

Thus, for those running a business, tell your professional organizer to make a note on your calendar of when to pay your taxes. 

What is there to know about property taxes in Houston? 

What is there to know about property taxes in Houston

Property taxes are assessed off of the current market value of real estate and any personal property that produces income. The key words here are “produce income.” 

So what does personal property include? 

While your car is considered personal property, you don’t have to pay property tax because you’re not using it to make a living. No, driving your car back and forth to work does not count. 

On the other hand, owning a truck converted into a taco truck to bring in constant income means the vehicle is eligible for property tax. 

In Houston, to assess the value of property tax, tax assessors analyze whether you made improvements on your personal property.

Furthermore, they consider whether the revenue is similar to previous property sales. 

Most property taxes are used to fund parts of Houston. Examples are water companies, electrical services, schools, etc. 

What are death taxes in Houston? 

What are death taxes in Houston

Death taxes sound gruesome, but don’t be fooled by the name. Death taxes are just another name for estate and inheritance taxes. 

Fortunately, people living in Houston do not have to worry about paying death taxes since the inheritance tax was repealed in 2015. As of now, there is no estate tax either.

However, if an estate holds a property value of more than 12.06 million, it can be held liable for federal taxes. This is where estate taxes in Houston can get tricky. 

Most county districts send out real estate agents to perform estate appraisals. The appraiser compares your estate to similar ones sold in the same area. 

In order to determine the tax amount for your tax bill, whatever the appraised value of your estate is, multiply it by the local tax rate. 

Now each district in Houston sets a different tax rate. The local tax rate is then based on the town’s revenue to cover its purchases. 

What are Houston property tax exemptions?

What are Houston property tax exemptions

Property tax exemptions can reduce the appraised value of real estate property. Therefore your tax bill is lower.

For example, if you have an appraised value of $200,000, with a tax rate of 1.8% applied, the total value ends up being $175,000. This gives you a difference of $450.

There are quite a few different property tax exemptions in the state of Houston. 

Homestead Exemption 

Homestead exemption applies to anyone whose home is their primary residence as of January 1 of the tax year. The benefit is that you may be eligible for a $25,000 decrease in your home’s appraised value. 

According to the Texas State Code, school districts in Houston can give a specific exemption of up to 20% of the appraised value. However, the amount of this local exemption cannot be less than $5,000. 

Exemptions for Disabled and Senior Citizens 

Homeowners 65 and over and those who are disabled are eligible for an additional $10,000 exemption from school district taxes. 

They also can receive an exemption from other municipal property taxes, but it cannot be less than $3,000. 

Because the school systems in Houston cannot levy more than what homeowners are paid, the tax is virtually fixed. 

By the way, any widows or widowers age 55 and older whose deceased spouse qualified for the 65-or-older exemption can receive the same tax exemption. 

Disabled Veterans Tax Exemption

Veterans of the United States Armed Forces members who have been disabled due to their service may qualify for a substantial disabled veteran’s exemption. 

This exemption equals 100% of their primary residence’s appraised value.

Solar/Wind Property Tax Exemption

Any properties utilizing wind or solar energy devices qualify for property tax exemption. This also is extended to any businesses or charity organizations. 

What minor taxes in Houston should I be aware of? 

What minor taxes in Houston should I be aware of

Since 1991, Houston’s gas tax on diesel and unleaded fuels has been fixed at 20 cents per gallon. For the average driver, this comes to just about $10 each month. 

Cigarettes in Houston are taxed at $1.41 a pack. Using a motel, bed & breakfast, or similar short-term stay will cost you an additional 6% of the room cost in taxes. 

Certain towns, counties, and government entities may levy an additional local hotel tax. 

What should I know about the Unemployment Tax Rate in Houston? 

What should I know about the Unemployment Tax Rate in Houston

Source of picture data: Texas Workforce Commission 

A lot of people fell prey to unemployment during the COVID-19 pandemic. So unemployment tax in Houston is on the minds of many. 

To make things easier for you, we’ll cover what you should know about the unemployment tax rate. 

General Tax Rate for Unemployment 

To start, there are different components involved in the unemployment tax rate in Houston. 

First, any tax that comes from a company’s responsibility to pay benefits to previous workers is considered the general tax rate. 

Do note that the general tax rate is experience rated. 

It is based on benefits you have paid to your former boss that was charged to your bank account. In other words, this is called chargebacks.

The GTR is calculated by multiplying the premium rate by the 2022 recharge rate of 1.38%. 

The purpose of the supplemental rate is to cover half of the benefits paid to eligible employees that are not credited to a particular employer. 

Your compensation ratio is the result of the last three years of compensation in your account divided by the taxable wages you paid your employees in the last three years.

The three-year period for calculating your tax rate for 2022 was from the fourth quarter of 2018 to the third quarter of 2021.

 If you received no benefits in the last three years and reported and paid taxable wages during that period, your general rate of taxation is 0 (0.00%). 

Each year, TWC calculates the GTR using the following formula: The general tax rate is equivalent to three years of chargebacks. 

This amount is divided by three years of taxable wages multiplied by the replenishment ratio. Remember that UI fees can negatively affect your GTR if you don’t report and pay them on time.

Replenishment Tax Rate for Unemployment 

The second component of the UI tax rate is a single tax paid by all employers.

The purpose is to supplement the unemployment benefit trust fund with the other half paid to eligible employees who are not billed to certain employers. 

Because employers cannot be held liable for these benefits, the legislature decided to spread the cost across all experienced employers. Each year TWC calculates the RTR using the following formula:

The replenishment tax rate (RTR) equals one-half of the benefits paid but not charged by the employer. This amount is divided by your total yearly taxable wages. 

The RTR for 2022 is 0.20%. This RTR has been reduced by 0.10% to compensate for the Employment and Training Investment Assessment (ETIA) component. 

Unemployment Obligation Assessment Tax Rate 

The third component of the tax rate is the unemployment benefit (OA) assessment. 

Why is the unemployment obligation assessment important? 

This assessment collects the amount needed to repay the bonds and to collect interest on any federal loans used to pay unemployment benefits. 

The tax assessment comprises two parts: the bond valuation rate and the interest rate.

The bond valuation rate is determined by multiplying the previous year’s tax rate, obligation assessment ratio, and yield margin percentage. It’s hardly ever a whole number, so be sure to round up to the nearest hundred. 

Keep in mind your previous year’s rate is the sum of the past year’s general, replenishment, and deficit tax rate. 

No matter what business you work for, remember all employers have to complete the unemployment benefit assessment. The liability verification rate and the efficiency margin are the same for all employers. 

As of the year 2022, the unemployment benefit ratio is 0%. This ratio equals the interest and principle administrative expenses on any bonds in 2022. 

The ratio amount is then divided by the previous year’s tax collected from June 30. The yield margin is also 0%, and there is no bond obligation assessment rate for 2022. 

Unemployment Interest Tax Rate

In Houston, the interest tax rate is applied to any federal loans; if owned, they are used to pay unemployment benefits. The percentage is the same for all employers. 

In the year 2022, the interest tax rate is 0.01%. 

Deficit Tax Rate for Unemployment 

The fourth component of the tax rate is the deficit rate (DTR). 

Suppose the Unemployment Benefit Trust Fund amount is less than the minimum established on the tax rate calculation date.

 In that case, a DTR is added for each employer with a work experience rating for the following year. 

The deficit tax rate is calculated by multiplying the ratio from the previous year with the deficit ratio, rounded to the hundreds place. 

For the year 2022, there is no deficit tax rate. It is 0.00%. 

Employment & Training Investment Assessment 

The fifth component of the tax rate is the Employment and Training Investment Assessment (ETIA).

These assessments are assigned to all employers making contributions under the Texas Unemployment Compensation Act. 

The money received from the assessment is transferred to credits from the Employment and Training Investment Fund. 

According to Texas law, the penalty rate is reduced by the same amount so that following this assessment; the tax rate does not increase.

By now, you should be an expert in all things regarding taxes in Houston. So the next time you see a tax charge on your receipt, or when it’s time to do taxes, reference our guide to Houston taxes. 

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