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What to Know About Texas Paychecks

Payroll taxes can be overwhelming when you’re starting your business. There are federal taxes, state taxes, and even local and city taxes in some locations. 

If you have employees in Texas, here are the federal and state payroll taxes you’ll have to collect and pay. 

Texas payroll taxes

Here’s what you need to know about withholding payroll taxes in Texas.

• Texas payroll taxes start with employees filling out Form W-4. This information helps you determine how much you should withhold. 
• If an employee does not complete this form, you will need to withhold tax as though no exemptions were claimed.
• Employees only need to update Form W-4 in case of life events (such as marriage, divorce, birth or adoption of a child, etc.) which may impact their taxes.
• Texas does not have personal income tax.
• Texas does not have reciprocity with other states.

Additional Texas forms

In addition to Form W-4 mentioned above, Texas employers also need to file the following forms:

1. Employer’s Quarterly Report (C-3)
2. New Hire Report

Texas unemployment tax rate

Texas requires most employers to pay unemployment insurance tax to help compensate workers who are out of work through no fault of their own. 

1. Employers pay Texas unemployment tax on the first $9,000 of an employee’s wages.
2. New employers pay at a rate of 2.7%.
3. Experienced employers pay at a rate of 0.23%–6.23%.
4. Unemployment tax in Texas should be paid quarterly to the Texas Workforce Commission’s Unemployment Tax Services website.

Texas salary threshold

Because Texas doesn’t have its own salary threshold, it adheres to the federal salary threshold.

• The federal salary threshold is now $684 per week on a salary basis or on an hourly basis at a rate not less than $27.63 an hour.
• The Department of Labor permits employers to count some bonuses, commissions, and other incentive payments toward meeting the standard salary level (up to 10%).
• Employees who earn at least $107,432 per year may qualify as “highly compensated.”
• See this Department of Labor fact sheet for details.

Workers’ Compensation

Requirements to obtain Workers’ Compensation vary by state. This table outlines some of these requirements. If you determine that your company is required to purchase Workers’ Compensation insurance in your state, learn how to sign up for this insurance with Gusto. Sometimes, companies get a request for a workers’ comp audit—head to this article and click the workers’ comp audit reports dropdown for more information. 

New hires

Employers in Texas need to report new employees.

1. New hires must be reported to the Texas New Hire Center.
2. New hires must be reported within 20 days of their first day of work. 

Payroll stubs

You must provide a pay stub to every employee that includes:

1. Company’s legal name and address
2. Employee’s name and last four digits of their Social Security number
3. Pay period beginning and end dates
4. Total hours worked
5. Rate of pay
6. Gross wages
7. The amount and reason for any deduction

Final paychecks

Employers must pay final wages to employees within a certain timeframe, depending on the circumstances for leaving.

• If a worker voluntarily resigns, final wages are due by the next scheduled payday.
• For layoffs and involuntary terminations of employment, final wages are due within six days.

Time off

Texas law requires employers to provide the following types of time off to employees.

• Jury duty

There’s not a specific time period given, but employers must allow employees to have paid time off to vote if polls aren’t open for two consecutive hours outside of their work day.

Federal payroll taxes

In addition to Texas-specific taxes, both you and your employees will pay a variety of federal payroll taxes. Check out the breakdown below.

Federal income tax

Unless they are exempt, your employees will pay federal income tax.

• You must withhold federal income tax from employees’ pay, unless they are exempt. 
• Each employee’s Form W-4 will differ based on their filing status and dependents, among other details—so the amount of income tax to be withheld will vary.
• Form W-4 does not need to be sent to the IRS, but should be kept for your records.

FICA

Both you and your employees will pay Federal Insurance Contributions Act, or FICA tax.

• FICA is made up of the Medicare tax and the Social Security tax. 
• In 2023, the Social Security tax requires employers and employees to each contribute 6.2% of wages up to $2,600. 
• The Medicare tax requires employers and employees to each contribute 1.45% of all wages. 
• See the IRS webpage for details, like maximum thresholds.

FUTA

Like the state, the federal government also has an unemployment tax, called FUTA, which is paid by employers.

• FUTA is an annual tax an employer pays on the first $7,000 of each employee’s wages. 
• The FUTA rate for 2023 is 6.0%, but many employers are able to pay less, for instance, up to 5.4% each year due to tax credits.
• Most employers will pay this tax annually with Form 940. But larger employers with more than $500 in tax due will have to pay quarterly. 

Additional Medicare tax

The Additional Medicare tax is paid by employees. Here’s what you should know:

• For employees that earn over $200,000 per year, 0.9% of earnings will need to be withheld for the Additional Medicare tax. 
• Whether or not your employee owes this tax may depend on their filing status.

Paying federal taxes

How often you’ll pay federal payroll taxes depends on how much you owe.

• Semi-weekly or monthly payments are required for federal withholding, Additional Medicare, and FICA taxes. And every quarter, a summary payroll tax return is due on Form 941, Employer’s Quarterly Federal Tax Return.
• Quarterly or annual payments are required for federal unemployment tax. Most employers will pay annually, but quarterly payments are necessary if you owe more than [amount]. Each time you make a payment, you’ll need to file a payroll tax return on Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return.

We’re here to help

If you don’t love manual number crunching and payroll taxes sound overwhelming to you, take advantage of Gusto’s full-service payroll options or use an experienced accountant to help you with the process.