Comparison•2025 Tax Year•Last verified: January 2026
Texas vs Arizona: Side Hustle Tax Comparison 2025
Compare Texas and Arizona taxes for freelancers and gig workers. Texas has no income tax while Arizona has a flat 2.5% - see which is better for you.
Texas and Arizona are both Sun Belt states attracting migrants from high-tax California and the Northeast. While Texas offers zero state income tax, Arizona's flat 2.5% rate is among the lowest in the nation—and Arizona offers some lifestyle advantages Texas doesn't.
For side hustlers choosing between these two growing states, the tax difference is real but modest. This guide helps you understand when that 2.5% matters and when other factors should drive your decision.
**Why This Comparison Matters:**
Both Texas and Arizona are top destinations for tax-conscious migrants:
- **Texas**: Zero income tax, massive economy, multiple major metros
- **Arizona**: 2.5% flat tax, growing tech scene, desert lifestyle
- **Both growing fast**: Among the fastest-growing states in the US
- **Both business-friendly**: Low regulation, pro-business climate
- **Climate difference**: Texas has humidity (Gulf); Arizona is dry desert
For side hustlers, Texas saves you 2.5% on income—but that may or may not outweigh Arizona's lifestyle, cost, or career advantages for your situation.
Side-by-Side Tax Comparison
| Metric | Texas | Arizona |
|---|---|---|
| State Income Tax Rate | 0% (no income tax) | 2.5% (flat) |
| State Tax Filing Required | No | Yes |
| Federal SE Tax | 15.3% | 15.3% |
| Est. Tax on $18K Side Hustle* | ~$6,505 | ~$6,955 |
| Annual Savings (TX vs AZ)* | ~$450 | — |
| Property Tax (Avg Rate) | 1.63% | 0.62% |
| Sales Tax (State + Avg Local) | 8.20% | 8.40% |
| Property Tax on $400K Home | ~$6,520/year | ~$2,480/year |
| Major Tech Hub | Austin | Phoenix/Scottsdale |
*Assumes single filer with $60,000 W-2 income + $15,000 net side hustle income. Actual taxes vary based on deductions, filing status, and total income.
Texas Analysis
**Texas Tax Analysis for Side Hustlers**
Texas has no state income tax, making it the clear winner on pure tax math.
**Key Texas Tax Facts (2025):**
- **State Income Tax**: 0%
- **Tax Type**: None
- **Filing Requirement**: No state income tax return required
- **Franchise Tax**: Only for businesses over $2.47 million revenue
- **Property Tax**: Higher than Arizona (1.63% avg)
**Example**: If you earn $60,000 from your W-2 job and $18,000 from side hustle income (net of expenses) in Texas:
- Federal SE Tax: ~$2,545
- Federal Income Tax on side income: ~$3,960
- Texas State Tax: $0
- **Total Tax on Side Hustle: ~$6,505** (36.1% effective rate)
Texas offers zero income tax plus major metros (Austin, Dallas, Houston, San Antonio) with diverse economies spanning tech, energy, healthcare, and finance.
Arizona Analysis
**Arizona Tax Analysis for Side Hustlers**
Arizona has a flat 2.5% income tax—not zero, but among the lowest rates in the nation.
**Key Arizona Tax Facts (2025):**
- **State Income Tax**: 2.5% flat rate
- **Tax Type**: Flat (simple filing)
- **Filing Requirement**: Yes, but straightforward
- **No Local Income Tax**: AZ cities don't add income tax
- **Property Tax**: Lower than Texas (0.62% avg)
**Example**: Same scenario—$60,000 W-2 job and $18,000 from side hustle income (net of expenses) in Arizona:
- Federal SE Tax: ~$2,545
- Federal Income Tax on side income: ~$3,960
- Arizona State Tax: ~$450
- **Total Tax on Side Hustle: ~$6,955** (38.6% effective rate)
**Texas saves you: ~$450/year** on $18,000 of side hustle income.
Arizona offers a growing Phoenix tech scene, lower property taxes, and dry desert climate that many prefer over Texas humidity.
Calculate Your Side Hustle Taxes
Use our calculator to see exactly what you'd owe in each state. Try entering your numbers, then switch between Texas and Arizona to compare.
Which State Is Right for Your Side Hustle?
**Texas May Be Better If You:**
- Want absolutely zero state income tax
- Work in tech and want Austin's larger ecosystem
- Work in energy (Houston) or finance (Dallas)
- Plan to rent (property taxes less relevant)
- Prefer more urban diversity and nightlife options
**Arizona May Be Better If You:**
- Plan to buy a home (saves ~$4,000/year in property tax)
- Prefer dry desert heat over Texas humidity
- Want a smaller, more manageable metro (Phoenix vs DFW/Houston)
- Are drawn to Arizona's outdoor lifestyle (Grand Canyon, Sedona)
- Don't mind paying 2.5% for the lifestyle trade-off
**Important Considerations:**
1. **Property taxes flip the script for homebuyers**: On a $400,000 home, Arizona saves you ~$4,040/year in property taxes vs Texas. That's nearly 10x the income tax difference.
2. **If renting, Texas wins clearly**: Without property tax considerations, Texas's zero income tax is the better deal.
3. **Climate is very different**: Arizona is dry desert heat (115°F but low humidity). Texas Gulf Coast is humid subtropical. Preferences vary.
4. **Tech ecosystem**: Austin is larger and more established than Phoenix for tech, but Phoenix is growing rapidly (especially fintech and semiconductor).
5. **Water concerns**: Arizona faces more severe long-term water challenges than Texas. This could affect property values and cost of living.
Frequently Asked Questions
Should I choose Texas over Arizona just for the 2.5% tax savings?
Not necessarily. The income tax savings in Texas ($450/year on $18K of side hustle income) are dwarfed by property tax differences if you're buying a home. Arizona's lower property taxes save ~$4,000/year on a typical home. If you're buying, Arizona often comes out ahead overall. If renting, Texas wins.
Which state is better for tech freelancers?
Austin has the larger, more established tech ecosystem with major company HQs (Tesla, Oracle, Apple campus) and a thriving startup scene. Phoenix is growing rapidly, especially in fintech and semiconductors (TSMC's new fab). Both are viable, but Austin has the edge for pure tech networking.
How different is the climate between Texas and Arizona?
Very different. Arizona (Phoenix) has dry desert heat—summer temps hit 110-115°F but humidity is low. Texas (especially Houston/Austin) has humid subtropical climate—slightly lower temps but high humidity makes it feel worse. Dallas is somewhat drier. Personal preference matters a lot here.
Related Comparisons
Sources
- • Texas Comptroller of Public Accounts
- • Arizona Department of Revenue - 2025 Tax Rates
- • IRS Publication 334 - Tax Guide for Small Business
- • Tax Foundation - State Tax Data 2025