Texas payroll starts by knowing which tax is absent.

Unemployment tax is the Texas payroll tax

The Texas Workforce Commission administers unemployment insurance tax. Liable employers register, file a quarterly wage report, and pay tax on the first $9,000 paid to each employee in the calendar year. Wages are reported when paid. The quarterly report and the tax are due by the last day of the month after the quarter. A quarter with no tax due can still need a report. TWC’s tax-rate pages are the source for the figures in this section.

For 2026, TWC states an entry-level rate of 2.70% for every NAICS industry group. The statute points new employers to the higher of the industry average or 2.70%, and for 2026 the result is 2.70% with no industry exception. On a full $9,000 wage base, 2.70% is $243. Newly liable employers keep that predetermined rate until they complete four chargeable quarters, unless they acquired another employer’s experience. After that, an interim rate and then an experience rate take over. The experience rate is the sum of five components: the general tax rate, the replenishment tax rate, the obligation assessment, the deficit tax rate, and the Employment and Training Investment Assessment.

The published 2026 range for experience-rated employers is 0.32% to 6.32%. The minimum of 0.32% on $9,000 is $28.80. The maximum of 6.32% is $568.80. Your December rate notice is the rate you use for the following calendar year. A published range on this page is not a substitute for that notice.

FUTA still stops at $7,000 even though Texas taxes up to $9,000. Track the two wage bases separately. When state unemployment tax is paid in full and on time, the FUTA credit is up to 5.4 points against the 6.0% gross rate. Confirm in the Form 940 instructions whether any credit reduction applies to Texas for that year.

Who has to open a TWC account

Liability is defined in the Texas Unemployment Compensation Act, not by a feeling that the business is “small.” Pay wages and then read TWC’s test for whether you must establish an account. Common paths include paying a stated amount of wages in a calendar quarter or employing someone for a portion of a day in a stated number of weeks. The thresholds are on TWC’s site and they matter, because registering late does not shrink the wages. If you are close to a threshold, register from the facts rather than from a rounded memory of the dollar amount.

An employer moving an existing worker into Texas, or hiring a remote worker who performs the services in Texas, should assume a Texas unemployment account is part of the hire. Localization rules decide the state when work is split. Those rules are summarized in the multi-state guide.

The paycheck without a state income-tax line

Calculate federal income tax, Social Security, and Medicare exactly as you would in a state that also has an income tax. Then stop. Do not insert a placeholder percentage “for Texas” because a spreadsheet from another state had a column there. Employees who live in a state that taxes residents on all income may still owe that state’s tax on Texas wages. Whether you must withhold for the resident state depends on that state’s rules and on whether the work is actually in Texas. Do not promise an employee that Texas wages are free of their home-state tax. You can promise that Texas itself is not withholding an income tax.

New hires are reported to the Texas directory. Federal law expects a new-hire report within 20 days, and the state directory can be stricter. Send the report when the person starts, not at quarter end. Form I-9 is still required. E-Verify is not a universal requirement for every private Texas employer. Some public contracts require it. Read the contract rather than assuming the Florida 25-employee rule traveled west. It did not.

Wages, payday, and workers’ compensation

The federal minimum wage of $7.25 is the general floor in Texas, because the state minimum tracks the federal rate for most employers. Overtime over 40 hours in a workweek is still a federal rule. The Texas Payday Law governs when earned wages must be paid and how employees can file a wage claim with TWC. Pick a pay frequency you can keep. Late payment is a wage claim even when every tax return is perfect.

Workers’ compensation is not mandatory for most private Texas employers. You can be a nonsubscriber. That choice removes the insurance policy and changes the lawsuits you can face if someone is injured. It is not a casual way to lower the cost of a paycheck. Some construction and public-project settings have different rules. The Texas Department of Insurance, Division of Workers’ Compensation, publishes the current coverage rules. If you do carry a policy, the premium is an employer cost, not a tax you withhold.

Give people a written wage statement that shows hours, rates, gross, taxes, and net, even though Texas does not copy California’s section 226 item by item. You need those records for the Fair Labor Standards Act and for the TWC wage report. Keep them where you can reconstruct a quarter.

A short setup sequence

1. Get a federal EIN and enroll in EFTPS if you have not already.
2. Decide whether TWC liability has started. If it has, register and wait for the rate notice. Until it arrives, the 2026 entry-level rate on the TWC site is 2.70%.
3. Collect Form W-4 and Form I-9. Do not create a state allowance form.
4. Set the workweek, the overtime rule, and the payday. Pay at least $7.25, and more when a contract or a federal contract wage requires it.
5. Withhold federal income tax, Social Security, and Medicare. Accrue the employer shares, FUTA on $7,000, and Texas UI on $9,000.
6. Report the new hire. File Form 941 and the TWC quarterly report. File Form 940 and Forms W-2 at year end.

Compare this structure with Florida, which also skips income-tax withholding but uses a $7,000 reemployment base and a state minimum wage of $15.00, and with California, which adds withholding, SDI, and a training tax. The federal half of all three is in withholding basics.