What Is Payroll Tax in Texas for Employers?

Payroll taxes are a fundamental aspect of operating a business with employees, funding government programs and social insurance initiatives. While federal payroll taxes apply uniformly across the United States, Texas employers also navigate state-specific requirements. Understanding these obligations ensures compliance and avoids penalties.

Federal Payroll Taxes

Employers are responsible for two primary federal payroll taxes: Federal Insurance Contributions Act (FICA) tax and Federal Unemployment Tax Act (FUTA) tax. FICA tax contributes to Social Security and Medicare programs, providing retirement, disability, survivor, and healthcare benefits. Both employers and employees share FICA contributions.

For 2025, the Social Security tax rate is 6.2% for both employee and employer, totaling 12.4%. This tax applies to wages up to an annual wage base limit of $176,100 for 2025. Wages above this limit are not subject to Social Security tax. The Medicare tax rate is 1.45% for both employee and employer, a combined 2.9%. Unlike Social Security, there is no wage base limit for Medicare tax, applying to all earnings. Employers must withhold an extra 0.9% in Medicare tax from employee wages exceeding $200,000; employers do not match this additional amount.

The Federal Unemployment Tax Act (FUTA) tax, paid solely by employers, funds state unemployment benefits. The standard FUTA tax rate is 6.0% on the first $7,000 of wages paid to each employee annually (the federal wage base). Employers can receive a credit of up to 5.4% against their FUTA tax liability for timely payment of state unemployment taxes. This credit effectively reduces the net FUTA tax rate to 0.6% for most employers.

Texas Unemployment Tax

The primary state-level payroll tax for Texas employers is the Unemployment Insurance (UI) tax, administered by the Texas Workforce Commission (TWC). This tax funds unemployment benefits for eligible workers who lose their jobs through no fault of their own. It is an employer-only tax; no portion is withheld from employee wages.

In Texas, the maximum taxable wages per employee per calendar year for UI tax is $9,000. Individual employer tax rates are determined by an experience rating system. This system considers taxable wages paid and unemployment benefit claims made by former employees against the employer’s account over a three-year period.

New employers are assigned an entry-level tax rate, typically the higher of a predetermined rate or the industry average, often 2.7%. After completing chargeable quarters, new employers receive an interim tax rate, then an experience tax rate. These rates can fluctuate annually, with current minimum rates as low as 0.25% and maximum rates reaching 6.25% for 2025. Texas does not impose a state-level personal income tax, so employers do not withhold state income tax from employee wages.

Fulfilling Your Payroll Tax Obligations

Employers must accurately report and deposit federal and state payroll taxes according to established schedules. For federal taxes, employers file Form 941, Employer’s Quarterly Federal Tax Return, to report federal income tax withheld, Social Security, and Medicare taxes. This form is filed quarterly, with due dates on April 30, July 31, October 31, and January 31 for the preceding quarter.

Federal tax deposits are made through electronic funds transfers, commonly via the Electronic Federal Tax Payment System (EFTPS). Deposit schedules for FICA and federal income tax withholding are either monthly or semi-weekly, determined by the employer’s tax liability during a lookback period. Monthly depositors remit taxes by the 15th of the following month. Semi-weekly depositors have specific due dates based on payday. If accumulated taxes reach $100,000 or more on any day, a deposit is due by the next business day.

For FUTA tax, employers file Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, annually by January 31 of the year following the tax year. Although filed annually, FUTA tax payments are made quarterly if the liability exceeds $500, with due dates on April 30, July 31, October 31, and January 31. These payments are also made electronically, often through EFTPS.

Texas Unemployment Tax reporting involves filing an Employer’s Quarterly Report (Form C-3) with the Texas Workforce Commission (TWC). This report is due by the last day of the month following the end of each calendar quarter. Payments can be made electronically through the TWC’s online Unemployment Tax Services system, using Automated Clearing House (ACH) debit from a bank account or a credit card. Credit card payments may incur additional fees. Adhering to these deadlines maintains compliance and avoids penalties or unfavorable tax rate adjustments.