What Are the Employer Payroll Taxes in Texas?
Understand employer payroll tax responsibilities in Texas. Get clarity on federal and state obligations and compliance steps.
Payroll taxes fund government programs. These taxes are withheld from employee wages and matched by the employer for social insurance and unemployment benefits. Employers in Texas must comply with these requirements.
Federal Payroll Taxes
Employers in Texas are responsible for federal payroll taxes, including Federal Insurance Contributions Act (FICA) taxes and Federal Unemployment Tax Act (FUTA) taxes. FICA taxes fund Social Security and Medicare programs. The Social Security component is levied at 6.2% on both the employer and employee, totaling 12.4% of an employee’s wages, up to an annual wage base limit of $176,100 for 2025.
The Medicare portion of FICA tax is assessed at 1.45% for both the employer and the employee. Unlike Social Security, there is no wage base limit for Medicare tax. Additionally, an employer must withhold an Additional Medicare Tax of 0.9% from an employee’s wages exceeding $200,000 in a calendar year, though the employer does not match this portion.
FUTA taxes contribute to the federal unemployment compensation program, which provides funds to states for administering unemployment insurance. The standard FUTA tax rate is 6.0% on the first $7,000 of each employee’s wages. Employers can receive a credit of up to 5.4% against their FUTA tax if they pay state unemployment taxes in full and on time, reducing the net FUTA tax rate to 0.6%. Employers also deduct federal income tax withholding from employee paychecks based on Form W-4.
Texas Unemployment Insurance Tax
Texas does not impose a state income tax on wages. However, employers are subject to the State Unemployment Insurance (SUI) tax. This tax is paid solely by the employer and helps fund unemployment benefits for eligible individuals.
The Texas unemployment tax applies to the first $9,000 of wages paid to each employee annually. For new employers, the initial tax rate is set at the North American Industry Classification System (NAICS) industry average or 2.7%. This initial rate applies until an employer establishes their own experience rating.
An employer’s experience rating determines their specific tax rate, which can range from 0.25% to 6.25% for 2025. This rate is influenced by factors such as unemployment benefits paid to former employees charged to the employer’s account. The overall effective tax rate in Texas also comprises several components, including a General Tax Rate, Replenishment Tax Rate, Obligation Assessment Rate, Deficit Tax Rate, and an Employment and Training Investment Assessment.
Employer Compliance Requirements
Employers must obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This nine-digit number serves as a federal tax ID for businesses, much like a Social Security number does for individuals, and is necessary for reporting and remitting federal payroll taxes.
In addition to federal requirements, employers in Texas must register with the Texas Workforce Commission (TWC) within 10 days of becoming liable for state unemployment tax. This registration can be completed online through the TWC website, providing an immediate TWC Tax Account Number. This account number is essential for all TWC interactions related to unemployment insurance.
Employers must file regular reports detailing wages paid and taxes withheld. Federally, employers file Form 941 quarterly to report withheld federal income tax, Social Security, and Medicare taxes. Form 940 is filed annually for FUTA tax. For state unemployment tax, employers submit Form C-3 to the TWC by the last day of the month following the end of each calendar quarter.
Federal payroll tax payments are made electronically, often via the Electronic Federal Tax Payment System (EFTPS). Employers can schedule payments up to 365 days in advance through EFTPS, with deposits required on a monthly or semi-weekly schedule depending on tax liability. Texas unemployment taxes are remitted to the TWC through electronic methods like Automated Clearing House (ACH) debit. Maintaining accurate payroll records is also a compliance requirement, supporting proper reporting and verification of tax liabilities.