How to Do Payroll in Texas: Step-by-Step Guide

Last reviewed: July 2026

Texas payroll skips an entire category of paperwork that most states require, since there's no state income tax to withhold. You still need a federal EIN, a Texas Workforce Commission account, a pay schedule that follows state law, and W-2s filed every January. Here's the process from your first hire onward.

1. Get a Federal EIN

Every employer needs an Employer Identification Number from the IRS. Apply free at irs.gov/ein, and you'll have the number within minutes online. You'll use it on federal filings, your TWC registration, and your business bank account.

2. Register With TWC

Register with the Texas Workforce Commission within 10 days of paying $1,500 or more in wages in a calendar quarter, or employing someone for part of a day in 20 different weeks in a year. This is your only state-level payroll tax registration in Texas, since there's no state income tax or withholding agency. New employers pay a standard rate of 2.7% on the first $9,000 of each employee's wages for 2026; experienced employer rates for 2026 range from 0.32% to 6.32% based on claims history.

3. Pay Frequency Under Texas Payday Law

Texas Payday Law, enforced by TWC, requires non-exempt employees to be paid at least twice a month on regularly scheduled paydays. Employees who are exempt under the Fair Labor Standards Act (executive, administrative, or professional roles) may be paid monthly instead. If you never designate specific paydays, the law defaults to the 1st and 15th of the month. Texas has no state minimum wage law of its own, so employers follow the federal rate of $7.25 per hour.

4. Workers' Compensation, or Not

Texas is unusual: private employers are not required to carry workers' compensation insurance. Employers who skip coverage are called non-subscribers, and they must file their non-coverage status with the Texas Department of Insurance, Division of Workers' Compensation, and report qualifying workplace injuries. Non-subscriber status also removes several legal defenses an employer would otherwise have if a worker sues over an on-the-job injury, so weigh the trade-off carefully before deciding to go without coverage.

5. Report New Hires

Report every new or rehired employee within 20 days of their start date. Unlike most states, this goes to the Texas Attorney General's Office, not TWC. You'll need the employee's name, address, Social Security number, start date, and your EIN. Most payroll software files this automatically.

6. Run Payroll and Make Deposits

Each pay period, calculate gross wages, withhold federal income tax from the employee's W-4, and withhold FICA (Social Security and Medicare), matching the employee's share as the employer. Deposit federal withholding and FICA on the schedule that applies to your business, either monthly or semiweekly, then file Form 941 each quarter. With no state withholding, your obligations on the tax side come down to federal deposits and Form 941 filings, plus the quarterly wage reports (Form C-3) you file with TWC.

Use our paycheck calculator to check gross-to-net math for Texas employees, and send new hires to our W-4 helper for their federal withholding form.

7. File Year-End W-2s

By January 31, issue Form W-2 to every employee and file copies with the Social Security Administration. File your fourth-quarter Form 941 and annual Form 940 (federal unemployment) by the same date, and file your final quarterly C-3 wage report with TWC on the normal schedule. With no state income tax, there's no state W-2 reconciliation to worry about, one less filing than most other states require at year-end.

Skip the Paperwork and Let PDS Run It

All of this is manageable for a small team, but it takes real attention every pay period, and TWC deadlines don't bend for a busy week. Because Texas has no state income tax, payroll here is mostly federal filings and deposits plus quarterly SUI reporting to TWC, and Pacific Data Services, in business since 1969, handles that combination remotely for Texas employers.

See how Pacific Data Services handles Texas payroll remotely →

Frequently Asked Questions

Do Texas employers withhold state income tax?

No. Texas has no state income tax, so employers never withhold or remit state income tax from wages. Texas payroll runs on federal withholding, FICA, and the state unemployment tax administered by the Texas Workforce Commission.

How often does the Texas Payday Law require employees to be paid?

Non-exempt employees must be paid at least twice a month on regularly scheduled paydays. Employees who are exempt under the Fair Labor Standards Act may be paid monthly. If an employer never designates paydays, the default under Texas law is the 1st and 15th of each month.

Is workers' compensation insurance required in Texas?

No. Texas is the only state that lets most private employers opt out of workers' compensation entirely, a status called being a non-subscriber. Non-subscribers must file their non-coverage status with the state and report qualifying workplace injuries, and they lose certain legal defenses if an employee sues over an injury.

What is the SUI wage base and new employer rate in Texas for 2026?

For 2026, the Texas Workforce Commission sets the SUI taxable wage base at $9,000 per employee and the standard new employer rate at 2.7%. Experienced employer rates for 2026 range from 0.32% to 6.32%, depending on claims history.