Understanding Texas Paychecks

Managing payroll taxes can be a complex task for any business owner, especially when you’re just starting. In Texas, like in many other states, there are various federal, state, and sometimes local taxes to consider. Here’s a comprehensive guide to help you navigate payroll taxes in Texas.

Federal and State Payroll Taxes in Texas

In Texas, employers are required to collect and pay both federal and state payroll taxes. Here’s what you need to know about withholding payroll taxes in Texas:

Employees in Texas must fill out Form W-4, which helps determine the amount of taxes to be withheld from their paychecks. If an employee doesn’t complete this form, you should withhold taxes as if no exemptions were claimed.

  • Updating Form W-4:

Employees only need to update their Form W-4 in case of life events such as marriage, divorce, or the birth or adoption of a child, which may impact their taxes.

  • Personal Income Tax:

Texas does not have a personal income tax, which simplifies tax calculations for both employers and employees.

  • Reciprocity:

Texas does not have reciprocity agreements with other states regarding income tax, so you’ll need to adhere to Texas tax laws even if your employees reside in another state.

Additional Texas Payroll Tax Forms

In addition to Form W-4, Texas employers must also file the following forms:

  • Employer’s Quarterly Report (C-3)
  • New Hire Report

Texas Unemployment Tax

Most Texas employers are required to pay unemployment insurance tax to help compensate workers who are out of work through no fault of their own. Here are some key points about the Texas unemployment tax:

  • Employers pay Texas unemployment tax on the first $9,000 of an employee’s wages.
  • New employers pay at a rate of 2.7%, while experienced employers pay at a rate ranging from 0.23% to 6.23%.
  • Texas unemployment tax should be paid quarterly through the Texas Workforce Commission’s Unemployment Tax Services website.

Texas Salary Threshold

Texas follows the federal salary threshold, which is $684 per week on a salary basis or an hourly basis at a rate not less than $27.63 an hour. Employers can count some bonuses, commissions, and other incentive payments toward meeting the standard salary level (up to 10%). Employees who earn at least $107,432 per year may qualify as “highly compensated.”

Workers’ Compensation

Requirements for Workers’ Compensation insurance vary by state. If your company is required to purchase Workers’ Compensation insurance in Texas, you can learn how to sign up for it with My Count Solutions.

Reporting New Hires

Employers in Texas need to report new employees to the Texas-New Hire Center within 20 days of their first day of work.

Providing Pay Stubs

Employers in Texas must provide a pay stub to every employee that includes:

  • Company’s legal name and address
  • Employee’s name and last four digits of their Social Security number
  • Pay period beginning and end dates
  • Total hours worked
  • Rate of pay
  • Gross wages
  • The amount and reason for any deduction

Final Paychecks

Final wages for employees in Texas must be paid within a certain timeframe, depending on the circumstances for leaving:

  • For voluntary resignations, final wages are due by the next scheduled payday.
  • For layoffs and involuntary terminations of employment, final wages are due within six days.

Time Off

Texas law requires employers to provide time off for jury duty and allows paid time off to vote if polls aren’t open for two consecutive hours outside of an employee’s workday.

Federal Payroll Taxes

In addition to Texas-specific taxes, both employers and employees in Texas will pay federal payroll taxes, including federal income tax, FICA (Medicare and Social Security tax), FUTA (federal unemployment tax), and the Additional Medicare tax for employees earning over $200,000 per year.

Paying Federal Taxes

The frequency of federal payroll tax payments depends on how much you owe. You may need to make semi-weekly or monthly payments for federal withholding, Additional Medicare, and FICA taxes, and quarterly payments for federal unemployment tax.

Get Help with Payroll Taxes

If you find payroll taxes overwhelming, consider using My Count Solutions’ full-service payroll options or consulting with an experienced accountant to simplify the process.