How Much Are Payroll Taxes in Texas?

Payroll taxes are a fundamental component of business finances and a significant deduction from employee earnings. These taxes are generally split into two categories: those employers withhold directly from wages and those employers pay based on wages. Understanding these components is important for employers, who calculate and remit them, and employees, who see these deductions.

Federal Payroll Tax Obligations

Federal payroll taxes apply uniformly across the United States, including in Texas. They primarily consist of contributions to Social Security and Medicare, collectively known as Federal Insurance Contributions Act (FICA) taxes.

For 2025, the Social Security tax rate is 6.2% for employees and an additional 6.2% for employers, totaling 12.4%. This tax applies to wages up to an annual limit, which is $176,100 for 2025. Earnings above this Social Security wage base limit are not subject to the Social Security tax.

Medicare taxes are levied at a rate of 1.45% for employees and a matching 1.45% for employers, resulting in a combined rate of 2.9%. Unlike Social Security, there is no wage base limit for Medicare tax; all covered wages are subject to this tax. An additional Medicare tax of 0.9% applies to an employee’s wages exceeding $200,000 in a calendar year, but only the employee is responsible for this supplemental tax, with no employer match.

Beyond FICA, employers are also responsible for the Federal Unemployment Tax Act (FUTA) tax. This tax contributes to a federal fund that provides benefits to unemployed workers and covers the costs of state workforce agencies. The FUTA tax rate is 6.0% on the first $7,000 of each employee’s wages annually.

However, employers receive a credit of up to 5.4% for timely contributions to state unemployment insurance programs, effectively reducing the net FUTA tax rate to 0.6%. This credit mechanism means that most employers pay a maximum of $42 per employee per year in FUTA tax ($7,000 wage base multiplied by the 0.6% effective rate). States with outstanding federal unemployment loans may be subject to a FUTA credit reduction, increasing the effective rate for employers.

Texas State Unemployment Tax

Texas does not impose a state income tax on individual wages. This means employees in Texas do not see state income tax deductions from their paychecks, which simplifies payroll calculations compared to states with such taxes. However, employers in Texas are still responsible for contributing to the state’s unemployment insurance program, known as the State Unemployment Tax Act (SUTA) or Texas Unemployment Tax.

The Texas Unemployment Tax is an employer-paid tax designed to fund unemployment benefits for eligible workers. For 2025, the taxable wage base for SUTA in Texas is $9,000 per employee per calendar year.

The SUTA tax rate for an employer in Texas varies based on several factors, including the employer’s industry and their experience rating, which reflects the history of unemployment benefits paid to former employees. New employers typically start with a predetermined rate, which is the greater of their North American Industry Classification System (NAICS) industry average or 2.7%. For experienced employers, rates can range from a minimum of 0.25% to a maximum of 6.25%. The effective tax rate for employers is a sum of various components.

Calculating Your Total Payroll Tax Burden

Calculating the total payroll tax burden involves combining both federal and state components.

For employees, the primary deductions are their share of FICA taxes: 6.2% for Social Security and 1.45% for Medicare. For example, an employee earning $50,000 annually would pay $3,100 in Social Security tax ($50,000 0.062) and $725 in Medicare tax ($50,000 0.0145), totaling $3,825 in FICA contributions. If an employee earns more than the Social Security wage base of $176,100, their Social Security contributions would cap at $10,918.20 ($176,100 0.062). For wages exceeding $200,000, an additional 0.9% Medicare tax would be withheld from the employee’s earnings.

Employers face a more complex calculation as they contribute to FICA, FUTA, and Texas SUTA. An employer with the same employee earning $50,000 would match the employee’s FICA contributions: $3,100 for Social Security and $725 for Medicare.

Additionally, the employer would pay FUTA tax, which, assuming the full credit, would be $42 per employee ($7,000 wage base 0.006). For the Texas Unemployment Tax, an employer with a new employer rate of 2.7% would pay $243 for the employee ($9,000 wage base 0.027). Therefore, for an employee earning $50,000, the employer’s total payroll tax burden would be $3,100 (Social Security) + $725 (Medicare) + $42 (FUTA) + $243 (Texas SUTA), totaling $4,110.