Yes, Texas does have payroll taxes, just fewer of them than most states. There is no state income tax to withhold from employee wages, but Texas employers still owe the full set of federal payroll taxes and a state unemployment insurance tax. The savings show up on the withholding side; the obligations on the employer side stay largely intact.
Federal Payroll Taxes You Still Owe
The absence of a state income tax changes nothing on the federal side. Three federal payroll taxes apply to Texas employers exactly as they apply everywhere else.
Social Security and Medicare (FICA)
FICA is the largest payroll tax most employers deal with. You withhold 7.65% from each employee’s wages and pay a matching 7.65% yourself, for a combined 15.3%.1Internal Revenue Service. 2026 Publication 926 That 7.65% has two parts:
- Social Security at 6.2% from each side, applied only to the first $184,500 of wages per employee in 2026. Once an employee crosses that threshold, Social Security withholding stops for the rest of the year.2Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet
- Medicare at 1.45% from each side, with no wage cap. Every dollar of wages is subject to Medicare tax.1Internal Revenue Service. 2026 Publication 926
Once an employee’s wages exceed $200,000 in a calendar year, you must also withhold an extra 0.9% Additional Medicare Tax on the amount above that. You don’t match it, but you are responsible for withholding it.3Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
Federal Income Tax Withholding
Even without a Texas counterpart, federal income tax withholding still applies. The amount you take out of each paycheck depends on the employee’s Form W-4 and the withholding tables in IRS Publication 15-T.4Internal Revenue Service. Understanding Employment Taxes This is a trust fund tax. The money belongs to your employees the moment you withhold it, and the IRS treats failure to send it in as one of the most serious mistakes an employer can make.
Federal Unemployment Tax (FUTA)
FUTA is employer-only. Nothing comes out of employee paychecks. The gross rate is 6.0% on the first $7,000 of each employee’s annual wages, but employers who pay their Texas unemployment taxes on time receive a credit of up to 5.4%, dropping the effective FUTA rate to 0.6%, or about $42 per employee per year.5Internal Revenue Service. Topic No. 759, Form 940 – Filing and Deposit Requirements
Texas Unemployment Insurance Tax
The one state-level payroll tax in Texas is the Unemployment Insurance tax, administered by the Texas Workforce Commission. Like FUTA, it is paid entirely by the employer.6Texas Workforce Commission. Unemployment Tax Basics
It applies to the first $9,000 you pay each employee during the calendar year.6Texas Workforce Commission. Unemployment Tax Basics Your rate depends on your experience rating, which reflects how many former employees have filed claims against your account. For 2026, rates range from 0.32% to 6.32%, or roughly $29 to $569 per employee per year.7Texas Workforce Commission. Your 2026 Tax Rates
To start paying, register with the Texas Workforce Commission and set up a tax account.8Texas Workforce Commission. Unemployment Tax Program From there, you file quarterly wage reports and make quarterly tax payments. The deadline is the last day of the month following each quarter: April 30, July 31, October 31, and January 31.9Texas Workforce Commission. Tax Report and Payment Due Dates
Filing and Deposit Deadlines
Several calendars overlap. Federal payroll taxes are reported on Form 941 each quarter, with the same due dates as the Texas UI schedule. If you deposited all taxes for the quarter in full and on time, you get an extra ten days, moving the return deadline to the 10th of the second month after the quarter ends.10Internal Revenue Service. Instructions for Form 941
FUTA is reported annually on Form 940, due January 31. Deposits may be required quarterly if your accumulated FUTA liability exceeds $500.5Internal Revenue Service. Topic No. 759, Form 940 – Filing and Deposit Requirements
Deposits and filings are separate obligations. Depending on the size of your payroll, the IRS assigns you either a monthly or semiweekly deposit schedule for withheld income tax and FICA. Filing the return on time does not cure a late deposit; the IRS treats them as distinct obligations with their own penalties.
Worker Classification Is Where Most Trouble Starts
Most payroll tax problems begin with a worker who was called a contractor but should have been an employee. Get it wrong, and you have skipped federal income tax withholding, your share of FICA, and UI contributions all at once. The IRS can hold you liable for the employment taxes you should have been paying the entire time.11Internal Revenue Service. Worker Classification 101 – Employee or Independent Contractor
The IRS looks at behavioral control, financial control, and the nature of the relationship. No single factor decides it. But if you set the hours, provide the tools, and pay hourly with no opportunity for the worker to profit or lose money on the project, labeling them a contractor on paper will not hold up.
New Hire Reporting
Every time you bring on a new employee, or rehire someone who has been away for at least 60 consecutive days, Texas law requires you to report them to the state’s Directory of New Hires within 20 calendar days of their start date. Electronic filers may report at least twice a month instead, provided the reports are no more than 12 to 16 days apart.12Texas Workforce Commission. New Hire Reporting Laws The data supports child support enforcement and unemployment fraud detection. It is not a tax, but it comes with the territory of running payroll.
What Late or Missed Payments Cost
Payroll taxes involve money that belongs to employees and the government, and enforcement reflects that.
Late Deposit Penalties
Miss a federal payroll tax deposit and the penalty scales with how late you are:
- 1 to 5 days late: 2% of the unpaid amount
- 6 to 15 days late: 5%
- More than 15 days late: 10%
- After an IRS notice demanding payment: 15%
These do not stack. A deposit 20 days late owes 10%, not the sum of the earlier tiers.13Internal Revenue Service. Failure to Deposit Penalty
Trust Fund Recovery Penalty
The harshest consequence is personal. When an employer withholds income tax and FICA from paychecks but fails to send that money to the IRS, the Trust Fund Recovery Penalty lets the IRS pursue the individuals responsible for the full amount that should have been remitted.14Office of the Law Revision Counsel. 26 U.S. Code 6672 – Failure to Collect and Pay Over Tax “Responsible person” is read broadly and can reach owners, officers, bookkeepers, or anyone with authority over which bills get paid. Your LLC or corporation offers no shield.
Franchise and Sales Tax Are Separate
Two other Texas taxes come up constantly for employers, though neither is a payroll tax. The franchise tax is calculated on taxable margin rather than net income; businesses with total annualized revenue of $2,650,000 or less owe nothing for 2026 reports, though a return may still be required.15Texas Comptroller of Public Accounts. Franchise Tax16Texas Comptroller of Public Accounts. 2026 Franchise Tax Instructions Sales tax runs 6.25% at the state level, with local add-ons pushing the combined rate as high as 8.25%.17Texas Comptroller of Public Accounts. Local Sales and Use Tax Frequently Asked Questions Neither touches payroll, but both are how Texas makes up for the missing income tax.