What payroll taxes you owe in Texas

Texas has no state income tax, so you do not withhold state income tax from employee paychecks. You still owe federal income tax withholding, Social Security tax, and Medicare tax — these explore everywhere. If your business is in Texas, you may also owe federal unemployment tax (FUTA) and Texas unemployment insurance tax (SUTA), depending on how many employees you have and how long you have been in business.

The calculation starts with gross pay — the total amount an employee earns before any deductions. From that number, you subtract what you are required to withhold and what the employee has authorized you to deduct. The result is net pay, what the employee takes home. You then send the withheld amounts to the IRS and to the Texas Workforce Commission on their schedules.

Key Takeaways

  • Federal income tax withholding depends on the employee's W-4 form, their gross pay, and the pay frequency — use the IRS withholding tables or the online calculator to find the amount.
  • Social Security tax is 6.2 percent of gross pay up to a wage base limit that changes each year; Medicare tax is 1.45 percent of all gross pay with no limit.
  • Texas unemployment insurance tax (SUTA) applies if you have paid wages of at least $1,500 in a calendar quarter, and the rate depends on your account history and industry.
  • Federal unemployment tax (FUTA) is 6 percent of the first $7,000 of each employee's annual wages, but you can claim a credit if you pay SUTA on time.
  • You must deposit federal withholdings and employment taxes on a schedule set by the IRS — usually monthly or semi-weekly depending on how much you owe.

Federal income tax withholding calculation

Federal income tax withholding is based on three pieces of information: the employee's W-4 form, their gross pay for the pay period, and how often you pay them (weekly, bi-weekly, semi-monthly, or monthly). The W-4 tells you the employee's filing status, number of dependents, and any extra withholding they want.

The IRS publishes withholding tables in Publication 15-T that show you how much to withhold based on these inputs. You can also use the IRS tax withholding estimator online or payroll software that applies the tables automatically. The tables change each year, so check the current year's version on the IRS website before you calculate.

Example: An employee files as single with no dependents on their W-4, earns $2,000 gross in a bi-weekly pay period, and claims no extra withholding. You look up "single, bi-weekly, $2,000" in the 2024 withholding table and find the federal income tax withholding amount. That amount comes out of the employee's paycheck; you send it to the IRS.

Social Security and Medicare tax calculation

Social Security tax is 6.2 percent of the employee's gross pay, but only up to a wage base limit. That limit changes each year — in 2024 it is $168,600, meaning you stop withholding Social Security tax once an employee has earned that much in the calendar year. Medicare tax is 1.45 percent of all gross pay with no limit, so you withhold it on every dollar earned.

Both taxes are calculated the same way each pay period: multiply gross pay by the tax rate. If an employee earns $3,000 gross in a pay period, Social Security withholding is $3,000 × 0.062 = $186 (assuming they have not hit the wage base limit). Medicare withholding is $3,000 × 0.0145 = $43.50. You withhold both amounts and send them to the IRS along with your matching employer contribution.

You also owe a matching employer contribution for Social Security and Medicare — 6.2 percent and 1.45 percent respectively. This is a business expense, not withheld from the employee's pay. You send both the employee withholding and your employer match to the IRS on the same deposit schedule.

Texas unemployment insurance (SUTA) calculation

You owe Texas unemployment insurance tax (SUTA) if you have paid wages of at least $1,500 in any calendar quarter to employees in Texas. Once you cross that threshold, you must register with the Texas Workforce Commission and pay SUTA on all wages paid in Texas.

The SUTA tax rate depends on your account history and industry classification. New employers typically start at a rate set by the state — in 2024 this is 2.7 percent for most industries, though it varies. Established employers pay a rate based on their experience rating, which reflects how many unemployment claims their former employees have filed. The rate can range from 0.31 percent to 5.4 percent depending on your history.

SUTA is calculated on the first $9,000 of each employee's wages in a calendar year. So if an employee earns $15,000 in a year, you calculate SUTA only on the first $9,000. The calculation is straightforward: multiply the taxable wages by your rate. If your rate is 2.7 percent and an employee has earned $9,000 in the year, SUTA owed is $9,000 × 0.027 = $243. You pay SUTA to the Texas Workforce Commission quarterly, usually by the last day of the month following the end of the quarter.

Federal unemployment tax (FUTA) calculation

Federal unemployment tax (FUTA) is 6 percent of the first $7,000 of each employee's annual wages. This is an employer-only tax — you do not withhold it from employee paychecks. You owe FUTA if you paid wages of $1,500 or more in any calendar quarter, or if you had at least one employee for any part of a day in 20 different weeks.

The calculation is straightforward: for each employee, multiply the first $7,000 of their annual wages by 0.06. If an employee earns $12,000 in a year, FUTA is $7,000 × 0.06 = $420. Once an employee has earned $7,000 in the calendar year, you stop calculating FUTA on their wages for the rest of that year.

You can claim a credit against FUTA if you pay SUTA on time. The credit is up to 5.4 percent, which means your net FUTA rate is often 0.6 percent instead of 6 percent. To claim the credit, you must pay all SUTA taxes by the due date and file Form 940 (your annual FUTA return) on time. Most employers in Texas pay SUTA, so most may have access to for the full credit.

Deposit schedules for federal taxes

You must deposit federal income tax withholding, Social Security tax, and Medicare tax on a schedule determined by how much you owe. The IRS uses a lookback period — the total taxes you deposited in a specific prior period — to decide if you are a monthly or semi-weekly depositor.

Most small employers are monthly depositors: you deposit all federal withholdings and employment taxes for a calendar month by the 15th of the following month. If you owed more than $50,000 in the lookback period, you are a semi-weekly depositor: you deposit taxes twice a week based on when you pay employees. The IRS sends you a notice telling you which schedule applies to your business.

You deposit federal taxes using the Electronic Federal Tax Payment System (EFTPS) or through your payroll provider. You also file Form 941 (Employer's Quarterly Federal Tax Return) each quarter to report all federal withholdings and employment taxes. FUTA is filed once a year on Form 940, due by January 31 of the following year.

Texas unemployment tax deposits and reporting

You pay SUTA to the Texas Workforce Commission quarterly. The due dates are the last day of the month following the end of each quarter: April 30 for Q1, July 31 for Q2, October 31 for Q3, and January 31 for Q4. You can pay online through the Texas Workforce Commission website or by check.

You also file a quarterly wage report with the Texas Workforce Commission showing gross wages paid to each employee. This report is used to calculate your experience rating and to process unemployment claims. The report is due on the same day as your SUTA payment. If you use payroll software or a payroll service, they often file this report for you automatically.

Frequently Asked Questions

Do I have to withhold state income tax in Texas?

No. Texas has no state income tax, so you do not withhold state income tax from paychecks. You still withhold federal income tax, Social Security, and Medicare. Some employees may owe income tax to other states if they work remotely for an out-of-state employer or live in a different state.

What if an employee's W-4 says "exempt"?

If an employee claims exempt status on their W-4, you do not withhold federal income tax from their pay. You still withhold Social Security and Medicare. Exempt status is rare and has strict IRS rules — the employee must have had no tax liability the prior year and expect none in the current year. If you are unsure, ask the employee to confirm with the IRS.

How do I know my SUTA rate?

The Texas Workforce Commission sends you a rate notice each year, usually in October or November for the following year. You can also log into your account on the Texas Workforce Commission website to see your current rate. If you are a new employer, the state assigns you an initial rate based on your industry.

What happens if I do not deposit taxes on time?

The IRS charges penalties and interest on late deposits. Penalties start at 2 percent of the unpaid amount and increase if the deposit is more than 15 days late. Interest accrues daily. If you miss a deposit, contact the IRS or the Texas Workforce Commission as soon as possible to arrange payment and discuss penalty relief options.

Can I use payroll software to calculate these taxes automatically?

Yes. Payroll software like ADP, Gusto, or QuickBooks Payroll calculates federal withholding, Social Security, Medicare, FUTA, and SUTA automatically based on employee information and current tax tables. The software also tracks wage bases and deposits, and files quarterly and annual returns. This is the most common way small businesses handle payroll taxes.