Texas is one of the simpler states for payroll because it has no state income tax. You don't withhold state tax from paychecks, and there's no state withholding return to file. But Texas employers still have federal payroll taxes to withhold and pay, plus state unemployment tax through the Texas Workforce Commission (TWC).
Payroll taxes in Texas at a glance
| Tax | Who pays | Rate and taxable wages | Paid to |
|---|---|---|---|
| Federal income tax | Employee, withheld by the employer | Based on the employee's Form W-4 and IRS rules | IRS |
| Social Security | Employee and employer | 6.2% each, on the first $184,500 per employee | IRS |
| Medicare | Employee and employer | 1.45% each, on all wages | IRS |
| Additional Medicare | Employee only | 0.9% withheld on wages above $200,000 | IRS |
| Federal unemployment (FUTA) | Employer | 6.0% on the first $7,000 per employee, generally 0.6% after the maximum state credit | IRS |
| Texas unemployment tax | Employer | Generally 2.7% for new employers, then a rate based on your history, on the first $9,000 per employee | TWC |
| State income tax | Neither | 0%, since Texas has no state income tax | None |
Federal taxes you withhold from employees
From each paycheck, you withhold:
- Federal income tax, based on the Form W-4 the employee gave you
- The employee's share of Social Security, 6.2%, until the employee's wages for the year reach $184,500
- The employee's share of Medicare, 1.45%, on all wages
- Additional Medicare tax of 0.9% once an employee's wages from you pass $200,000 for the year
The $200,000 figure is when you, the employer, must start withholding the additional Medicare tax. What the employee actually owes is settled on their own tax return, based on their filing status.
This money belongs to your employees and the IRS, not to the business. Hold it separately in your books as a liability until you deposit it.
Federal taxes the employer pays
On top of what you withhold, the business pays:
- The employer's matching share of Social Security (6.2%) and Medicare (1.45%)
- Federal unemployment tax (FUTA) of 6.0% on the first $7,000 of each employee's wages, generally reduced to 0.6% by the credit for paying state unemployment tax
The 0.6% FUTA rate assumes you qualify for the full state tax credit. If you don't, your effective FUTA rate can be higher.
These are real costs of having employees, and they should be recorded as payroll tax expense, separate from wages.
Texas unemployment tax through the TWC
Texas unemployment tax is paid only by the employer. Nothing is withheld from employees for it.
- You register with the Texas Workforce Commission once your business becomes liable for the tax under Texas law.
- The tax applies to the first $9,000 each employee earns in a year.
- The TWC assigns your rate. New employers generally start at 2.7%, and established employers get a rate based on their own experience.
- You file a quarterly wage report and pay the tax online.
Filing deadlines for Texas employers
| Filing | What it covers | Due |
|---|---|---|
| Federal tax deposits | Withheld taxes plus the employer's share | Monthly or semiweekly, depending on the size of your payroll |
| Form 941 | Quarterly federal payroll tax return | April 30, July 31, October 31 and January 31 |
| TWC quarterly wage report | Texas unemployment tax | April 30, July 31, October 31 and January 31 |
| Form 940 | Annual federal unemployment tax return | January 31 |
| Forms W-2 and W-3 | Annual wage statements to employees and the Social Security Administration | January 31 |
| New hire report | Each new employee, reported to the state | Within 20 days of the hire date |
The IRS tells you each year whether you're a monthly or semiweekly depositor. Late deposits carry penalties even when the quarterly return is filed on time, so the deposit schedule matters as much as the returns.
The Texas Payday Law
Besides taxes, Texas has rules about how often and how you pay employees, set by the Texas Payday Law. It affects your choice of pay schedule, which I cover in biweekly vs semi-monthly payroll.
How to keep Texas payroll taxes under control
- Get a federal employer identification number and register with the TWC before your first payroll.
- Collect a Form W-4 from every employee before their first paycheck.
- Run payroll through software such as QuickBooks Payroll, so withholding is calculated for you.
- Record wages, withheld taxes and employer taxes in separate accounts.
- Reconcile the payroll tax liability accounts every month, so the balance matches what's still owed.
- Put every deposit and filing date on a calendar with a reminder a week ahead.
If you're paying yourself through payroll as an S corp owner, the same rules apply to your own salary. I explain when that makes sense in LLC vs S corp in Texas.
Want payroll handled for you?
I've worked in accounting for 38 years, and I run payroll for small businesses through QuickBooks Payroll, with every pay run recorded in the books, working online from Weatherford, Texas. See my payroll services or book a short intro call.
Sources
- IRS Publication 15 (Circular E), Employer's Tax Guide for 2026
- Social Security Administration: Contribution and Benefit Base
- Texas Workforce Commission: Unemployment Tax Basics
- Texas Workforce Commission: New Texas Employer Information
This article is general information, not tax advice for your specific situation. Rates, wage limits and deadlines are set by the IRS and the Texas Workforce Commission and can change.