Texas Payroll Taxes 2026: Complete Overview for Employers

If you employ workers in Texas, you benefit from one of the simplest state payroll environments in the country. Texas is one of only nine states that levies no state personal income tax, which eliminates the need for state income tax withholding from employee paychecks. There are no state W-4 equivalents, no state withholding tables, and no state income tax returns to file.

That said, "no state income tax" does not mean "no payroll taxes." Texas employers are still responsible for a meaningful set of federal payroll obligations and the state's unemployment insurance program. This guide breaks down every payroll tax Texas employers owe in 2026 — and clearly identifies the ones you do not owe — so you can stay compliant without overpaying.

Overview: What Texas Employers Owe

As a Texas employer, your payroll tax obligations fall into three categories: federal taxes you pay as the employer, federal taxes you withhold from employees, and one state-level tax paid by the employer. Here is the complete picture:

Let's examine each tax obligation in detail.

No State Income Tax — What That Means for Employers

The single biggest payroll advantage of operating in Texas is the absence of a state personal income tax. This benefit is enshrined in the Texas Constitution, which prohibits the legislature from imposing an income tax on individuals without a statewide voter referendum. For employers, this means:

• No state income tax withholding: You do not need to calculate, withhold, or remit any state income tax from employee paychecks.
• No state W-4 equivalent: There is no Texas version of a state withholding allowance certificate. Employees only need to complete the federal W-4.
• No state income tax returns: You do not file any state income tax return related to employee wages. There is no state equivalent of the federal Form 941.
• No state W-2 filing: While you must still file W-2s with the Social Security Administration (SSA) and provide copies to employees, there is no requirement to file copies with a state tax agency for income tax purposes.
• Simpler payroll calculations: Eliminating an entire layer of tax calculation reduces complexity, processing time, and the risk of withholding errors.

FICA: Social Security and Medicare

FICA (Federal Insurance Contributions Act) taxes are the largest payroll tax obligation for Texas employers. FICA consists of two components: Social Security and Medicare. Both are split equally between employer and employee.

Social Security (OASDI) — 2026 Rates

• Rate: 6.2% employer + 6.2% employee = 12.4% total
• Wage base: $176,100 per employee per calendar year (2026 limit)
• Maximum employer cost per employee: $10,918.20 ($176,100 x 6.2%)

Once an employee's year-to-date wages reach $176,100, you stop withholding and paying Social Security tax for that employee for the remainder of the year. The wage base is adjusted annually by the SSA based on the national average wage index.

Medicare (HI) — 2026 Rates

• Rate: 1.45% employer + 1.45% employee = 2.9% total
• Wage base: No cap — all wages are subject to Medicare tax
• Additional Medicare Tax: An extra 0.9% applies to employee wages exceeding $200,000 in a calendar year. This is employee-only; there is no employer match on the Additional Medicare Tax.

Combined, the employer's FICA obligation is 7.65% of wages (6.2% Social Security + 1.45% Medicare) on every dollar up to the Social Security wage base, and 1.45% on every dollar above it. For an employee earning $60,000 per year, the employer's FICA cost is $4,590.

FUTA: Federal Unemployment Tax

The Federal Unemployment Tax Act (FUTA) funds the federal portion of the unemployment insurance system. It is paid entirely by the employer — no employee withholding.

• Gross rate: 6.0% on the first $7,000 of each employee's wages per year
• Credit for state UI taxes: Employers who pay state unemployment taxes on time receive a credit of up to 5.4%, reducing the effective FUTA rate to 0.6%
• Effective rate: 0.6% on the first $7,000 = $42 per employee per year
• Filed on: IRS Form 940 (annual)
• Deposited: Quarterly if your FUTA liability exceeds $500; otherwise annually with Form 940

Texas is currently in good standing with the federal government regarding its UI trust fund, meaning Texas employers receive the full 5.4% FUTA credit. If Texas were to borrow from the federal government to cover unemployment benefits and not repay within two years, employers could face a FUTA credit reduction (sometimes called a "FUTA surcharge"), which would increase the effective rate. This has not occurred in recent years.

Texas SUI: State Unemployment Insurance

Texas State Unemployment Insurance (SUI) is the only state-level payroll tax Texas employers must pay. It is administered by the Texas Workforce Commission (TWC), not the IRS.

• New employer rate: 2.7% for most industries (some industries have different initial rates)
• Experienced employer range: 0.23% to 6.23%
• Taxable wage base: $9,000 per employee per calendar year
• Who pays: Employer only (employees do not contribute to Texas UI)
• Filed on: Employer's Quarterly Report (Form C-3) to TWC

At the new employer rate of 2.7%, your SUI cost per employee is:

$9,000 x 2.7% = $243 per employee per year

At the minimum experienced rate of 0.23%, the cost drops to just $20.70 per employee per year. At the maximum rate of 6.23%, it rises to $560.70 per employee.

Experience rating kicks in after an employer has been in the TWC system for a sufficient period (generally three complete fiscal years of chargeable history). Your rate is recalculated annually based on your chargeback ratio — the relationship between unemployment benefits charged to your account and the taxable wages you have reported. For a detailed breakdown of SUI rates, see our Texas SUI Rates 2026 guide.

What Texas Employers Owe vs. Don't Owe

Here is a clear side-by-side comparison of what you do and do not owe as a Texas employer. This table is helpful for business owners who have operated in other states and want to understand exactly how Texas differs.

As the table shows, Texas employers avoid five categories of state and local payroll taxes that employers in many other states must pay. This makes Texas a notably lean payroll environment.

How Texas Compares to Other States

Understanding the Texas payroll advantage is easier when you compare it directly to other major states. Here is how the employer-side payroll tax burden stacks up:

Texas and Florida share the distinction of having no state income tax and no mandatory SDI or PFL programs. However, Texas has a slightly higher SUI wage base ($9,000 vs. Florida's $7,000). Compared to California or New York, the payroll savings in Texas are substantial — especially when you factor in the absence of SDI withholding, PFL contributions, and complex state income tax calculations.

Federal Income Tax Withholding

Although Texas has no state income tax, you are still required to withhold federal income tax from each employee's paycheck. Federal withholding is based on:

• The employee's Form W-4 selections (filing status, dependents, additional withholding, etc.)
• The employee's gross pay for the pay period
• The IRS withholding tables (Publication 15-T)

Federal income tax withholding is variable — the amount depends entirely on each employee's W-4 and earnings. Unlike FICA, there is no fixed percentage or wage base. Your payroll software or provider handles the calculation based on IRS tables.

Depositing Federal Taxes

All federal payroll taxes (FICA employer and employee shares, plus federal income tax withholding) are deposited to the IRS using the Electronic Federal Tax Payment System (EFTPS). Your deposit frequency is either:

• Monthly: If you reported $50,000 or less in total payroll taxes during the lookback period (generally, you deposit by the 15th of the following month)
• Semi-weekly: If you reported more than $50,000 during the lookback period (you deposit within 3 business days of payday, depending on the day of the week)

You also file Form 941 (Employer's Quarterly Federal Tax Return) each quarter to reconcile your deposits. The annual Form 940 reports your FUTA liability.

Filing Schedules and Deadlines

Here is a consolidated calendar of key payroll tax deadlines for Texas employers:

Recommended Payroll Software for Texas Employers

Given that Texas has no state income tax, payroll processing is simpler than in most states. However, you still need a reliable system to handle FICA calculations, federal withholding, FUTA, Texas SUI reporting to TWC, W-2 generation, and deposit scheduling. Here are three solid options:

• PDS Payroll: Excellent choice for Texas businesses that also have employees in other states. PDS handles multi-state payroll compliance, tax filings, and deposits across all jurisdictions. Their dedicated support team is knowledgeable about state-specific requirements.
• : Popular with small businesses and startups. Gusto automates federal payroll tax calculations, FICA, FUTA, W-2s, and handles Texas SUI reporting. Clean interface and transparent pricing. Free trial available.
• : Full-service payroll provider with strong support for Texas employers. Offers payroll processing, tax filing, HR tools, and retirement plan administration. Scales well from small businesses to mid-size companies.

Frequently Asked Questions

Does Texas really have no payroll taxes?

Texas has no state income tax, but employers do owe Texas SUI (state unemployment insurance) to the Texas Workforce Commission. You also owe all standard federal payroll taxes: FICA (Social Security and Medicare), FUTA, and federal income tax withholding. The phrase "no payroll taxes" is misleading — what Texas lacks is a state income tax, which eliminates one significant layer of withholding and compliance.

What is the total employer payroll tax rate in Texas?

For a typical Texas employer, the combined employer-side rate is approximately 7.65% of wages for FICA (Social Security + Medicare), plus 0.6% on the first $7,000 for FUTA, plus 0.23%–6.23% on the first $9,000 for Texas SUI. On a $50,000 salary, the total employer tax cost ranges from roughly $3,888 to $4,428 depending on your SUI rate.

Do I need to withhold state taxes for employees who live in another state but work in Texas?

If the employee performs their work physically in Texas, you generally follow Texas rules — meaning no state income tax withholding. However, some states (like New York) have "convenience of the employer" rules that may require withholding for their state even if the employee works remotely from Texas. Consult a tax professional or use a multi-state payroll service like PDS Payroll to ensure compliance.

Do I file W-2s with the state of Texas?

No. Since Texas has no state income tax, there is no state agency that requires W-2 submissions for income tax purposes. You only need to file W-2s with the SSA (federal) and provide copies to your employees.

How do I register as an employer in Texas?

You must register with the Texas Workforce Commission (TWC) within 10 days of first paying wages. Registration is done online at twc.texas.gov. You also need a federal EIN from the IRS. See our TWC Registration Guide for step-by-step instructions.

Is workers' compensation insurance required in Texas?

No. Texas is one of the few states where workers' compensation insurance is optional for private employers (with some exceptions for government contractors and certain industries). However, employers who do not carry workers' comp ("non-subscribers") lose important legal protections and may face lawsuits from injured employees. Most advisors recommend carrying coverage. See our Workers' Comp Guide for details.