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Updated: April 14, 2024
Payroll taxes in Texas are some of the smallest in the nation. Since there’s no state income tax in the Lonestar State, small business owners only have to contend with federal taxes. That means your job calculating payroll is much easier than employers in other states.
Fast facts about payroll taxes in Texas
- Texas has no state income tax, but employers must pay unemployment and disability taxes.
- Employers in Texas pay unemployment taxes based on business size and history of unemployment claims.
- Employers must withhold federal income tax, Social Security tax, and Medicare tax from employees’ paychecks.
- Texas uses the federal minimum wage rate of $7.25 per hour.
Federal payroll taxes for Texas employers
Though Texas-specific payroll taxes are a less of a tightrope, you still have the nuisance that is federal payroll taxes. But, the good news is our Texas payroll calculator at the top of this page can figure out federal payroll tax withholding and any other taxes your business needs to pay.
Here’s what you need to know when you’re calculating federal payroll taxes. For a more in-depth discussion of each of the federal payroll tax items, see our step-by-step guide to calculating employee payroll taxes.
- Gross Wages:
- For all your hourly employees, multiply their hours worked by the pay rate…and don’t forget to add any overtime hours worked!
- For all your employees on salary, divide each employee’s annual salary by the number of pay periods per year.
- Deduct Pre-Tax Withholdings if your employees contribute to 401(k), FSA, or other pre-tax withholdings. Simply subtract their contributions from gross wages before applying payroll taxes. Or you might consider using payroll software that allows you to automate these types of deductions.
- Deduct Federal Income Tax, which ranges from 0% to 37%. Detailed withholding information can be found through the IRS website.
- Deduct FICA Taxes (and Match):
- For Social Security tax, withhold 6.2% of each employee’s taxable wages up until they have earned a total of $168,600 for the year. As an employer, you also need to pay this tax.
- For Medicare tax, withhold 1.45% of each employee’s taxable wages up until they have reached a total earning of $200,000 for that year. You will also pay this tax. For employees who make salaries above $200,000, withhold an Additional Medicare Tax of 0.9%. Only the employee is responsible for paying the Additional Medicare Tax.
- Pay FUTA Unemployment Tax, which is 6% of the first $7,000 of taxable income. If you pay state unemployment taxes on time and in full, you are eligible for a tax credit of up to 5.4%. Only employers are responsible for paying FUTA taxes.
- Subtract Post-Tax Deductions, such as child support, court-ordered wage garnishments, etc. If applicable, you will receive a letter from the court stating the amount of the deduction.
There’s a lot to consider when searching for a tool to pay employees (and the many companies that offer employers ways to do this). To make it easier to see how the vendors stack up, we have a resource that makes it easy to see all the features of the top providers side by side. For example, you can see how OnPay vs Gusto compare to one another when it comes to ease of use, cost, and support.
Texas Unemployment Insurance
While there’s no state income tax in Texas, there’s a variety of other taxes you should make sure are taken care of. Currently, Texas unemployment insurance rates range from 0.31% to 6.31% with a taxable wage base of up to $9,000 per employee per year in 2024. New employers should use the greater of the average rate for all employers in the NAICS code or use 2.7%.
To figure out your Effective Tax Rate, simply add these 5 components: General Tax Rate (GTR) + Replenishment Tax Rate (RTR) + Obligation Assessment Rate (OA) + Deficit Tax Rate (DTR) + Employment Training Investment Assessment (ETIA).
You can also use the Texas Workforce Commission’s unemployment benefits estimator if you want to estimate your Texas Unemployment Insurance benefits. Are there other numbers you would like to run, like calculating a bonus or a gross-up? All you need to do is navigate to the main payroll calculator, and many other tools will be at your fingertips. From here, you can get an idea of the costs associated with starting a 401(k) to figuring out an employee’s tipped wages.
Reporting new hires in Texas
Federal and state law requires employers to report new hires and rehires within 20 calendar days of the employee’s first day on the job (which is also the day the employee starts earning wages). New hires can be reported online through Texas’s employer portal.
Are you a multi-state employer? Be sure to select Texas as your reporting state. According to the attorney general’s website, it is the only way the Texas Workforce Commission (TWC) can receive new hire information on Texas residents who may be:
- Receiving unemployment benefits and
- Working for a multi-state employer.
Do you have employees nearby too? These might be helpful.
Now write your employees’ paychecks!
You’ve figured out all your payroll needs, so now you can make your small business stand out in the big state of Texas. Get your signature ready because after you’ve calculated your employees’ net pay by implementing all deductions, it’s time to write those checks. All you have to worry about is paying your employees on time and setting aside any taxes your company is responsible for (FICA and UI payments, we’re looking at you).
You need to fill out Forms 940 (annually) and 941 (quarterly), but if you prefer ongoing fulfillment, payment can be made via the EFTPS payment system. Find further information on the IRS here.
Additional TX Payroll Tax Resources:
If you’re still looking to fill your brain with more juicy payroll tax facts, here are some additional resources and contact information for those who know Texas payroll like the back of their hand:
The Texas Comptroller of Public Accounts: All the phone numbers you may need.
Employer and Tax Information directly from the Secretary of State himself, and a phone number for good measure: (512) 463-5555.
These rates are based on local legislation and can change at any time. Always consult a tax professional if you are unsure about your obligations.
More helpful payroll calculators
Employers in Texas can use the calculator at the top of this page to quickly calculate their employees’ gross pay, net pay, and deductions (and feel confident when cutting paychecks). But every now and then, employers run into situations that require a bit more wrangling. For example, do your high-performing employees receive bonuses from time to time? Remember that Uncle Sam considers this type of payment to be supplemental wages and requires taxes to be withheld. Also, if you have workers who come and go, there may be times when you need to figure out what their final paycheck will be. So, if you can use a little more help managing the math, check out some of the calculators listed below.