What Is the Payroll Tax Rate in Texas?

Payroll taxes are a significant consideration for businesses and individuals across the United States. These taxes fund various federal and state programs. For employers in Texas, understanding their application and specific rates is an important aspect of financial management.

Understanding Payroll Taxes in Texas

For employers and employees in Texas, “payroll taxes” refer to contributions made to federal programs and the state’s unemployment insurance system. Texas distinguishes itself by not levying a state income tax on individual wages, so employees do not have state income tax withheld from their paychecks.

Despite this, businesses in Texas are responsible for collecting and remitting federal payroll taxes, which apply nationwide. Employers must also contribute to the state’s unemployment insurance program. These obligations comprise the primary payroll tax responsibilities for Texas businesses.

Federal Payroll Tax Components

Federal payroll taxes, known as FICA taxes, include Social Security and Medicare contributions. These taxes are shared between employees and employers. For 2025, the Social Security tax rate is 6.2% for employees and 6.2% for employers, totaling 12.4%. This tax applies to earnings up to an annual wage base limit of $176,100 for 2025. Wages above this threshold are not subject to Social Security tax.

Medicare tax, funding hospital insurance, has a rate of 1.45% for employees and 1.45% for employers, for a combined rate of 2.9%. Unlike Social Security, there is no wage base limit for Medicare tax, meaning all covered wages are subject to this tax. An additional Medicare tax of 0.9% applies to individual earnings exceeding $200,000, or $250,000 for married couples filing jointly, and $125,000 for married individuals filing separately. This additional 0.9% Medicare tax is the sole responsibility of the employee and does not have an employer-matched portion.

Texas Unemployment Insurance (UI) Tax System

The Texas Unemployment Insurance (UI) tax is the primary state-level payroll tax employers must pay. This tax funds unemployment benefits for eligible workers who become unemployed through no fault of their own. The Texas UI tax is paid entirely by the employer; employees do not contribute to it.

For 2025, the taxable wage base for Texas UI is $9,000 per employee per calendar year. The specific UI tax rate assigned to an employer depends on several factors, including whether the business is new or has an established history.

New Texas employers are assigned an entry-level tax rate. This rate is typically the greater of their North American Industry Classification System (NAICS) industry average or 2.7%. This rate applies until the employer qualifies for an experience-rated tax rate.

Established employers receive an experience-rated tax rate. This rate is calculated based on factors such as the amount of unemployment benefits paid to former employees that are charged to the employer’s account. The Texas Workforce Commission (TWC) communicates each employer’s specific rate, which falls within a range. For 2025, the minimum Texas UI tax rate is 0.25%, and the maximum rate is 6.25%.