Payroll tax in Texas: What employers need to know [Updated 2024]

If your team is growing in Texas or you have a team member working remotely in the Lone Star state, it's essential to know that payroll tax regulations vary from state to state. Therefore, it's crucial to clearly understand tax laws in all the states where your employees reside.

Companies in Texas are responsible for state payroll taxes and federal payroll FICA taxes, such as Medicare tax and Social Security taxes. Texas has a very simplified tax structure that can increasingly benefit employers. There’s no state income tax for individuals so there’s no income tax withholding for employers after their new hire.

If you have employees in Texas, whether for a small business or a global corporation, it is important to stay compliant with the IRS and the Texas Workforce Commission. To do so, you should become familiar with the various types of taxes, their tax rates, tax deductions, and who is responsible for paying them. Learn more below…

About Texas payroll taxes

In Texas, the Texas Workforce Commission collects and administers payroll taxes at the state level. There’s only one payroll tax in Texas: unemployment insurance tax.

The only payroll tax in Texas is the unemployment insurance tax. The employer's tax rate determines the amount of state unemployment insurance taxes they are required to pay. This is calculated by multiplying the amount of taxable wages by the employer's tax rate.

Employers deduct taxes for salaried employees based on their W-4 form on their first pay period. They are not responsible for withholding income tax from taxable wages, only federal income tax on payday.

Unemployment insurance tax

In Texas, employers must pay only one payroll tax at the state level, which is the unemployment insurance tax. This tax is a part of the nationwide program administered by the US Department of Labor. Neither employers nor employees are mandated to pay state income tax in Texas.

The Texas Unemployment Compensation (TUC) program is funded by the unemployment insurance tax to assist workers who have lost their jobs due to circumstances beyond their control, like layoffs. The rate of tax an employer pays is determined by their experience rating, which considers how often their employees have claimed unemployment benefits in the past.

UI taxes are charged at different rates each year, depending on five factors.

• General Tax Rate (GTR)
• Replenishment Tax Rate (RTR)
• Obligation Assessment Rate (OA)
• Deficit Tax Rate (DTR)
• Employment Training Investment Assessment (ETIA)

Texas employers are required to pay both federal unemployment taxes under the Federal Unemployment Tax Act (FUTA) in addition to Texas’ state tax. New employers pay 2.70% with maximum taxable wages of USD 9,000 and then they are notified of their new rate the following calendar year.

Payroll tax due dates in Texas

Employers in Texas are required to pay unemployment insurance tax to the Texas Workforce Commission every quarter. To set up a tax account, employers must register with the Commission and report wages paid to employees along with paying the taxes due each quarter. It is necessary to submit the quarterly wage reports and taxes by the last day of the month following the end of the calendar quarter.

• First quarter (January-March): Filed and paid by April 30
• Second quarter (April-June): Filed and paid by July 31
• Third quarter (July-September): Filed and paid by October 31
• Fourth quarter (October-December): Filed and paid by January 31

Penalty for late filing in Texas

The report penalty reaches its maximum in the third month, but interest continues to accrue at a rate of 1.5 percent per month, up to a maximum of 37.5 percent.

How to submit payroll taxes in Texas

How do Texas employers file their taxes quarterly? They have a few options.

File electronically

According to the Texas Workforce Commission's regulations, employers must report their unemployment insurance wages and pay quarterly unemployment insurance taxes electronically. Failure to comply with this requirement may result in penalties per the Texas Unemployment Compensation Act.

TWC offers employers and their representatives three free electronic methods for filing reports:

Unemployment Tax Services

The Unemployment Tax Services system enables employers with up to 1,000 employees to submit wage reports online, with four filing options available at no cost. You must have an employer account to use this option.

• Uploading a file (Excel or comma-separated format)
• Using an employer's last report as a starting point
• Entering the wage details manually
• Submitting a No Wages report when an employer did not pay any wages in the quarter

QuickFile 

QuickFile is a free wage reporting software that employers can use with any number of employees, agents, and payroll providers representing multiple clients.

Intuit EasyACCT Professional Series

Intuit EasyACCT Pro offers useful accounting modules like payroll, financial statements, and tax processing. It automatically calculates state unemployment tax and generates tax returns for filing with TWC.

File by mail

Only employers who have received hardship waivers from the Commission can submit their quarterly reports by mail using the printed form. A hardship waiver is granted to employers who don't have a computer or internet access.

You can submit your reports and payments to:

Cashier - Texas Workforce Commission
P.O. Box 149037
Austin, TX 78714-9037

Rippling’s full-service payroll software

With Rippling's payroll software, you can easily sync your business's HR data with payroll, eliminating the need for manual data entry or tax calculations. It handles all your compliance needs, including Texas minimum wage and local labor laws, and ensures timely filing of federal and Texas state payroll taxes automatically with the relevant agencies.

FAQs about Texas payroll taxes

Are there local tax laws in Texas?

No, there are no local payroll tax laws in Texas. 

Can your tax returns be audited in Texas?

Yes, taxpayers should be aware that their tax returns can be subject to audit by the State of Texas Comptroller's Office to ensure that the taxes paid are accurate and based on the taxpayer's actual books and records. 

Are nonprofit organizations subject to payroll taxes in Texas?

Yes, nonprofit organizations in Texas are not subject to exemptions and have the same unemployment tax rules as other employers.

Does Texas require employers to provide workers’ compensation?

No, workers' compensation insurance is not required for employers in Texas.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for, tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.