Texas Payroll Guide

 

Texas Payroll Tax Guide (2026)

A Texas employer’s effective unemployment rate is five pieces added together, a general tax rate, a replenishment tax, an obligation assessment, a deficit tax and a 0.10% training assessment, and for 2026 the total lands between 0.32 and 6.32% with a statewide average of 1.20%.[1]

10 min read • Reviewed by Rajanikant Patel CPA • Verified • Sources: TWC, IRS
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Quick Facts

Texas payroll at a glance

Texas has one state payroll tax. Wages are not subject to state income tax withholding, so the only state cost is employer paid unemployment tax on the first $9,000 each employee earns in a year.[1]

State income tax withholding
None on wages [7]
UI taxable wage base
$9,000 per employee [1]
New employer UI rate
2.70% [1]
Experienced UI rate range
0.32%–6.32% [1]
Employee-paid state payroll tax
None [1]
Employment and Training Investment Assessment
0.10% [4]
Social Security wage base
$184,500 [2]
FUTA net rate
0.6% = $42 per employee [12]
State minimum wage
$7.25 per hour (federal floor) [6]
Local minimum wage ordinances
None [6]
UI registration trigger
Under the Texas Labor Code an employing unit becomes an employer once it… [1]
Exempt salary threshold
$35,568 per year [11]
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What changed for Texas payroll in 2026

Six items moved for Texas employers this year. Anything below is what have changed since the 2025 tables, so a rate card carried over from last year will be wrong in at least one place.

2026 rates run 0.32 to 6.32% Wage base stays at 9,000 2026 rate notices posted online Domestic filers due 2 February 2026 Federal salary test back to 684 No FUTA credit reduction expected
Budgeting from the general tax rate alone: Texas rate notices break the charge into a general tax rate plus a replenishment tax, an obligation assessment, a deficit tax and a training assessment. Employers who copy only the general tax rate into payroll software under-accrue, because the effective rate is the sum of all five. The training assessment alone is a fixed one tenth of one percent of wages under Section 204.121 of the Labor Code, and it applies even to an employer whose general tax rate is zero.
Estimate

2026 Texas payroll tax calculator

Enter one employee’s annual gross wages to see what the employer owes, what comes out of the paycheque, and the true cost of employment.

Texas · 2026 rates · per employee, per calendar year
Cash wages subject to payroll tax, before any withholding.
Your exact rate is on the Tax Rate Summary inside Unemployment Tax Services, where the commission posted 2026 employer tax rates.
FUTA is 6.0% less a 5.4% credit where the state has no outstanding federal loan.

Employer pays

UI, on first $9,000–
Employment and Training Investment Assessment, on first $9,000–
FUTA, on first $7,000–
Social Security, 6.2%–
Medicare, 1.45%–
Employer payroll tax–

Withheld from the employee

Social Security, 6.2%–
Medicare, 1.45%–
Additional Medicare, 0.9% over $200,000–
Withheld from employee–
True cost of employment–
Employer tax as % of wages–
Total payroll tax, both sides–

Texas does not withhold state income tax from wages, so there is nothing to add here.

Rates & Nexus

Payroll tax rates & the nexus question

Texas runs three state payroll taxes. The table below is the whole state layer for 2026.[1]

The state payroll taxes

TaxPaid by2026 rateWage base
UIEmployer0.32%–6.32%; 2.70% new$9,000
Employment and Training Investment AssessmentEmployer0.10%$9,000
Obligation AssessmentEmployerVaries$9,000

Texas does not use lettered rate schedules. The Texas Workforce Commission builds an effective tax rate by adding the general tax rate, the replenishment tax rate, the obligation assessment rate, the deficit tax rate and the employment and training investment assessment. For 2026 the commission publishes a minimum effective rate of 0.32%, a maximum of 6.32% and an average of 1.20%. The commission did not publish a retrievable 2026 value for the individual replenishment, obligation assessment and deficit components. The 2026 components are a replenishment tax rate of 0.21%, an obligation assessment of 0.01%, a deficit tax of 0.00% and the 0.10% Employment and Training Investment Assessment.[1]

Who has to register

Under the Texas Labor Code an employing unit becomes an employer once it pays wages of $1,500 or more during a calendar quarter, or employs at least one individual for a portion of at least one day during 20 or more different calendar weeks. Farm and ranch labor becomes employment at $6,250 in cash wages in a calendar quarter or three or more farm and ranch workers for a portion of a day in 20 different weeks. Domestic service in a private home is covered at $1,000 of cash wages in a calendar quarter in the current or preceding year. A 501(c)(3) organization is covered once it employs at least four individuals for a portion of a day in 20 or more different calendar weeks.[1]

Multistate and remote employees

When an employee works in more than one state, the four-part test below decides which state the wages are reported to. The tests run in order: you stop at the first one that gives an answer.

  • 1. Localisation of service→
  • 2. Base of operations→
  • 3. Place of direction & control→
  • 4. Employee’s residence

One remote employee is usually enough. A single person working from home in Texas generally creates an obligation to register and report wages here, even if the business has no office, property or customers in the state.

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Compliance

Registration & return filing

Registration is online and free. The unemployment account and, where one exists, the withholding account are opened separately and carry different numbers.[1]

How to register

  • Cross the wage threshold→
  • Unemployment Tax Services, known as UTS→
  • Receive account number→
  • Tax Rate Summary inside Unemployment Tax Services, where the commission posted 2026 employer tax rates→
  • File & deposit online

Under the Texas Labor Code an employing unit becomes an employer once it pays wages of $1,500 or more during a calendar quarter, or employs at least one individual for a portion of at least one day during 20 or more different calendar weeks. Farm and ranch labor becomes employment at $6,250 in cash wages in a calendar quarter or three or more farm and ranch workers for a portion of a day in 20 different weeks. Domestic service in a private home is covered at $1,000 of cash wages in a calendar quarter in the current or preceding year. A 501(c)(3) organization is covered once it employs at least four individuals for a portion of a day in 20 or more different calendar weeks.[1]

Returns, reports & due dates

FormWhat it isDue
Employer’s Quarterly Wage Report, filed with the tax payment through Unemployment Tax ServicesQuarterly unemployment returnApril 30, July 31, October 31, January 31
Form 941Federal quarterly returnLast day of the month after quarter end
Form 940Federal unemployment, annualJanuary 31
New hire reportReport of newly hired employeesWithin 20 days of start date

Quarterly unemployment returns are due April 30, July 31, October 31, January 31. A return filed one day late is delinquent, and in most states the penalty attaches to the return, not the payment.[1]

Pricing

Payroll Pricing

Simple, transparent pricing, no setup fees, no year-end surprises. One flat charge per pay run.

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Setup fee
one-time onboarding
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$0
Every payroll run
each pay cycle
billed
extra
$0
Off-cycle payroll
corrections & bonuses
billed
extra
$0
Year-end filings
W-2s, 1099s & more
billed
extra
$0
All you actually pay
Per employee, per pay run
$6 /emp
Plus a flat $40 minimum per pay run. That’s the whole bill.
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Wage Base

Subject wages vs. exempt payments

Not every dollar an employee receives is a taxable wage. The split below governs what goes into the unemployment wage base and what is reported at year end.[1]

Subject wages

  • Salaries, hourly pay, overtime and piece rates
  • Commissions, bonuses and incentive pay
  • Most cash tips reported by the employee
  • Vacation, holiday and paid sick leave when taken as wages
  • Severance and payments in lieu of notice
  • The cash value of meals and lodging provided as compensation
  • Employer contributions to a non-qualified deferred compensation plan

Not subject

  • Reimbursements of genuine business expenses under an accountable plan
  • Employer contributions to a qualified retirement plan
  • Employer-paid premiums for accident and health insurance
  • Most third-party sick pay after the sixth calendar month
  • Payments to a genuine independent contractor
  • Workers compensation benefits

The wage base is per employer, per year, not per job. If you hire someone in August who already earned $9,000 elsewhere, your unemployment clock still starts at zero. The one exception is a successor employer taking over an existing payroll, who inherits the wages already paid.

Reference

Glossary of key terms

Taxable wage base
The slice of each employee’s annual pay that unemployment tax is calculated on. In Texas that is $9,000 for 2026. Earnings above it are still wages, they are simply no longer taxed for unemployment.
Experience rating
The method Texas Workforce Commission uses to set each employer’s own unemployment rate from its history of claims. Employers with fewer charged claims move down the schedule; those with more move up.
New employer rate
The rate assigned before an employer has enough history to be experience rated. It normally applies for two to three years, then the account moves onto the experience schedule.
Reserve account
The running balance of contributions an employer has paid in, less the benefits charged against it. The ratio of that balance to taxable payroll is what drives the assigned rate.
Successor employer
A business that acquires another’s payroll may inherit both its experience rate and the wages already paid toward the wage base for the year. Getting this wrong is a common acquisition error.
Localisation of service
The first of four tests deciding which state a multistate employee’s wages are reported to. If substantially all the work is in one state, that state wins and the remaining tests are never reached.
FUTA credit reduction
A reduction in the 5.4% federal unemployment credit applied to states that have carried an outstanding federal loan for two or more consecutive Januaries. It raises the effective FUTA rate and is settled each November.
Supplemental wages
Bonuses, commissions, awards and similar payments made outside the regular payroll cycle. Many states set a separate flat withholding rate for them.
Federal, State & Local

Texas payroll tax, layer by layer

Federal tax applies everywhere and is the larger number. The state layer is what changes when you cross a border.

Layer 1: Federal

TaxRate2026 base
Social Security6.2% each side$184,500
Medicare1.45% each sideNo limit
Additional Medicare0.9% employee onlyOver $200,000
FUTA, standard0.6% net$7,000
Federal income taxPer Form W-4No limit

Texas has no FUTA credit reduction for 2026, so the standard 0.6% net rate applies, $42 per employee. The final list is not published until 10 November 2026.[12]

Layer 2: State

TaxRate2026 base
UI, new employer2.70%$9,000
UI, experienced0.32%–6.32%$9,000
Employment and Training Investment Assessment0.10%$9,000
Obligation AssessmentVaries$9,000
Income taxNone on wagesn/a

Layer 3, county & city: no payroll tax, but a wage floor

No county or city in Texas levies its own payroll or income tax withheld by employers. The local layer shows up as minimum wage, not as tax.[6]

The state minimum wage is $7.25 an hour, which is the federal floor, effective 2009-07-24. The tipped cash wage is $2.13. No local ordinance sets a higher floor. Section 62.051 of the Texas Labor Code requires an employer to pay the federal minimum wage, and Section 62.0515 provides that the minimum wage under the chapter supersedes a wage established in a city ordinance, order or charter provision governing wages in private employment. Wages set through a public contract are outside that rule, so a city can still require a higher rate from its own contractors.[6]

Overtime exemption is a separate test. A salaried employee is exempt from overtime only above $35,568 a year ($684.00 a week) federal FLSA standard salary level, and only if the duties test is also met. Paying a salary is not by itself enough.[11]

FAQ

Texas payroll FAQs

No. Article 8 Section 24-a of the Texas Constitution, adopted on 5 November 2019, provides that the legislature may not impose a tax on the net incomes of individuals, including an individual’s share of partnership and unincorporated association income. A Texas paycheck therefore shows only federal income tax, Social Security and Medicare. There is no state withholding certificate to collect from new hires.

The Texas Workforce Commission set the minimum effective rate for 2026 at 0.32% and the maximum at 6.32%, with a statewide average of 1.20%. Those rates apply to the first $9,000 each employee earns in the calendar year. At the maximum, one fully taxed employee costs $568.80 for the year, and at the minimum the same employee costs $28.80.

The commission adds five terms: the general tax rate, the replenishment tax rate, the obligation assessment rate, the deficit tax rate and the employment and training investment assessment. The training assessment is fixed by Section 204.121 of the Labor Code at one tenth of one percent of wages paid. The other four move from year to year based on the condition of the unemployment fund and your own benefit history.

The United States Department of Labor records a new employer rate of 2.70% for Texas as of January 2026. On the 9,000 dollar wage base that is $243 a year for a fully taxed employee. Section 204.006 of the Labor Code frames the new employer rate as the greater of the rate for the employer’s major industry group less one tenth of one percent, or two and six tenths percent.

You become an employer once you pay $1,500 or more in wages during a calendar quarter, or employ at least one individual for part of a day in 20 or more different calendar weeks. Farm and ranch labor triggers coverage at $6,250 of cash wages in a quarter or three workers in 20 different weeks. Domestic service in a private home triggers coverage at $1,000 of cash wages in a quarter, and a 501(c)(3) organization is covered at four employees in 20 different weeks.

Not for private employment generally. Section 62.051 of the Labor Code requires employers to pay the federal minimum wage, currently $7.25 an hour, and Section 62.0515 provides that the state minimum wage supersedes a wage established in a city ordinance, order or charter provision governing wages in private employment. The exception is wages under a public contract, so a city may still require a higher rate from businesses it contracts with.

$9,000 per employee per calendar year. Once an employee reaches that in wages from you, no further unemployment tax is due on that employee for the rest of the year. The count restarts on 1 January and does not carry over from a previous employer.

No. Texas does not impose an income tax on wages, so there is no state withholding certificate, no deposit schedule and no annual reconciliation. Federal withholding still applies in full.

$7.25 an hour, which matches the federal floor. No local ordinance sets a higher rate. The tipped cash wage is $2.13.

April 30, July 31, October 31, January 31. A return is delinquent the day after the deadline even if the tax itself was paid on time, so file the return whether or not you can pay.

Verification

Sources & methodology

  1. Texas Workforce Commission – Unemployment Tax Basics
  2. Texas Workforce Commission – Unemployment Insurance Tax Rates
  3. Texas Workforce Commission – Your Tax Rates
  4. Texas Legislature – Texas Labor Code Chapter 204, Contributions
  5. Texas Legislature – Texas Labor Code Chapter 201, General Provisions
  6. Texas Legislature – Texas Labor Code Chapter 62, Texas Minimum Wage Act
  7. Texas Legislature – Texas Constitution Article 8, Taxation and Revenue
  8. United States Department of Labor, Employment and Training Administration – Significant Provisions of State Unemployment Insurance Laws, January 2026
  9. United States Department of Labor, Wage and Hour Division – State Minimum Wage Laws
  10. United States Department of Labor, Wage and Hour Division – Minimum Wages for Tipped Employees
  11. United States Department of Labor, Wage and Hour Division – Salary Levels for the Executive, Administrative and Professional Exemption
  12. Internal Revenue Service – Topic no. 759, Form 940 and Federal Unemployment Tax
  13. United States Department of Labor, Employment and Training Administration – FUTA Credit Reductions
  14. Social Security Administration – Contribution and Benefit Base
Methodology: every rate, threshold and due date on this page was taken from the administering agency’s own published material for the 2026 tax year, checked on Oct 1, 2026. Where a federal figure applies it comes from the IRS, SSA or US Department of Labor. 4 data points on this page could not be confirmed against a primary source and are either omitted or marked as not published, rather than estimated. Rates change, and some change mid-year, so confirm against your own rate notice before running a payroll.
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