How Much Are Payroll Taxes in Texas?

Payroll taxes are a fundamental component of employer responsibilities, encompassing a range of taxes levied on wages paid to employees. These taxes serve to fund various social programs, including Social Security, Medicare, and unemployment insurance, which provide essential benefits. For businesses operating in Texas, understanding payroll taxes involves navigating both federal requirements and specific state-level contributions, particularly given that Texas does not impose a state income tax on wages.

Federal Payroll Taxes

Employers nationwide, including those in Texas, are subject to federal payroll taxes, primarily consisting of the Federal Insurance Contributions Act (FICA) taxes and the Federal Unemployment Tax Act (FUTA) tax. FICA taxes are a combination of Social Security and Medicare taxes, shared by both employers and employees. For 2025, the Social Security tax rate is 6.2% for both the employer and the employee, applied to wages up to an annual wage base limit of $176,100.

Medicare tax, another part of FICA, is set at a rate of 1.45% for both employers and employees, and unlike Social Security, there is no wage base limit for Medicare tax; all covered wages are subject to this tax. Additionally, an employer must withhold an Additional Medicare Tax of 0.9% from an employee’s wages that exceed $200,000 in a calendar year.

The Federal Unemployment Tax Act (FUTA) tax is another federal payroll tax, paid solely by employers to fund unemployment benefits. The standard FUTA tax rate is 6.0% on the first $7,000 of wages paid to each employee annually. However, employers can typically receive a credit of up to 5.4% against the federal tax for timely state unemployment tax payments. This credit effectively reduces the net FUTA tax rate to 0.6% for most employers.

Texas Unemployment Tax

Texas stands out among states by not levying a state income tax on wages, which simplifies payroll for many businesses. However, employers in the state are still responsible for the Texas Unemployment Tax, administered by the Texas Workforce Commission (TWC). The TWC unemployment tax is calculated on a taxable wage base, which for 2025 is $9,000 per employee per year.

For new employers in Texas, the initial unemployment tax rate is determined as the greater of 2.7% or the average rate for their specific North American Industry Classification System (NAICS) industry. Experienced employers, in contrast, have their rates assigned annually based on their unemployment claim history, a system known as experience rating. These experienced rates can vary significantly, ranging from a minimum of 0.25% to a maximum of 6.25% for 2025.

Combining Federal and State Payroll Taxes

Understanding the full scope of payroll taxes involves consolidating both the federal and state components. Employers bear the burden of their share of FICA taxes, FUTA tax, and the Texas Unemployment Tax, while also withholding the employee’s portion of FICA taxes from their wages. For example, if an employee earns $5,000 in a pay period, the employer would pay their share for Social Security and Medicare. The employee would also have their share for Social Security and Medicare withheld. Additionally, the employer would owe FUTA tax and Texas Unemployment Tax based on their assigned rate.

The total employer cost for an employee’s wages would be the sum of the employer’s FICA share, FUTA, and TWC tax. The employee’s gross pay would be reduced by their FICA contributions, plus any federal income tax withholding. As an employee’s earnings accumulate throughout the year, the Social Security wage base limit of $176,100 and the FUTA wage base limit of $7,000 will be reached. Once these limits are met, no further Social Security or FUTA taxes are applied to wages above those thresholds for that calendar year, impacting the overall tax calculation.

Reporting and Paying Payroll Taxes

For federal taxes, employers typically file Form 941, Employer’s Quarterly Federal Tax Return, to report withheld income taxes, Social Security, and Medicare taxes. This form is generally due quarterly, by the last day of the month following the end of each calendar quarter. Federal unemployment taxes (FUTA) are reported annually on Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, which is due by January 31 of the following year.

Federal tax deposits for FICA, income tax withholding, and FUTA are generally made through the Electronic Federal Tax Payment System (EFTPS). Deposit schedules can vary, ranging from daily to monthly or semi-weekly, depending on the employer’s total tax liability. For Texas unemployment taxes, employers are required to submit a quarterly wage report, Form C-3, and a Wages List, Form C-4, to the Texas Workforce Commission (TWC). These reports, along with payments, are typically due by the last day of the month following the end of each quarter. Payments can often be made through the TWC online portal, with a Payment Voucher (Form C-3V) used for payments by check or money order, particularly for those with approved hardship waivers.