How To Do Payroll In Texas: What Every Employer Needs To Know
REVIEWED BY:Charlette Beasley
Charlette has over 10 years of experience in accounting and finance and 2 years of partnering with HR leaders on freelance projects. She uses this extensive experience to answer your questions about payroll.
Heather is a staff writer and payroll specialist with several years of experience working directly with small business owners. Her expertise allows her to deliver the best answers to your questions about payroll.
This article is part of a larger series on How to Do Payroll.
Paying employees in Texas is a much easier process than youll find in other states. Theres no income tax, businesses arent required to purchase workers comp insurance, and employers only pay state unemployment taxes . There are some special laws concerning overtime and minimum pay frequency, but overall, Texas follows the federal regulations concerning business taxes.
If youre learning how to do payroll in Texas on your own and want to avoid being penalized for making mistakes, consider using Rippling. Rippling is an all-in-one HR platform that helps you onboard new employees, pay with direct deposits at no additional costs, and file payroll taxes. It even monitors tax laws at the federal, state, and local levels to ensure total compliance for your business.
Penalties Possible For Late Improper Wage Report Submissions
Wage reports submitted in an improper format and/or missing Social Security numbers are not acceptable. R.S.23:1538 authorizes the LWC to assess penalties for failure to submit timely, accurate and complete quarterly wage and tax reports in the manner approved by the Program Administrator. Penalties start at 5 percent of the total amount due for the quarter or $25, whichever is greater, if the failure is for 30 days or less. For each additional 30-day period that the failure continues, an additional penalty will be assessed equaling 5 percent of the total amount due for the quarter or $25, whichever is greater. Total penalty cannot exceed 25 percent of the amount due for the quarter or $125, whichever is greater.
Different Ways To Pay Employees In Texas
Texas doesnt have any special rules restricting the methods you use to pay employees. That means you can pay employees with cash, check, direct deposit, or even payroll card.
If youre paying the employee their wages in a form other than one of the types previously listedfor instance, in goodsyoull need to prepare a written agreement for both you and the employee to sign with the details of the payment arrangement before distributing.
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Registering For Unemployment Taxes
The Texas Workforce Commission allows you to register online for unemployment taxes. You’ll need the following materials to register:
- Email address of business contact.
- Payroll information, such as employment history for employees, when wages were first paid and the amount of your quarterly wage payments.
- Names of any previous owners.
- Social security numbers for business owners.
- Any business mailing addresses.
- Understanding of the products and/or services offered by the business.
The following employer types are not liable for unemployment insurance taxes in the state of Texas:
- Customers/clients of independent contractors.
- Extremely small employers that pay less than $1,500 in wages in a year.
- Exempt employees.
Texas Payroll Tax And Registration Guide
Account Number Needed:
Companies who pay employees in Texas must register with the Texas Workforce Commission . TX also requires employers to register their payroll provider with the TWC as an to allow the provider to file and pay TX unemployment taxes.
TX Workforce Commission Account Number: 99-999999-9
- Register online with the TWC within 10 days of the first check date to receive the number immediately. Registration requires company location and Federal Employer Identification Number.
- Find an existing TWC Account Number:
- By logging in to the Unemployment Tax Services site
- By contacting the TWC via their Contact page
Though the state of Texas only requires TX employers to register within 10 days of paying $ 1500+ in a quarter, Zenefits Payroll requires companies to register for their TWC account number prior to running their first payroll. This more stringent requirement allows Zenefits Payroll to make sure that UI amounts are correct from day one.
Required Payroll Documentation:
- Not applicable
- The Texas Withholding Commission requires electronic filing of all Unemployment Taxes. Use a payroll report that contains SSN, Employee Name, Quarterly Gross Wages, Quarterly Taxable Wages, andemployer contribution amounts.
Third Party Access /POA Needed:
Texas Avoided Payroll Tax Hikes Other States May See
The COVID-19 pandemic drain on state UI funds has many businesses around the country preparing for payroll tax hikes.
In response to the COVID-19 pandemic, state unemployment insurance benefits, funded through payroll taxes, were exhausted. As a result, the percentage of employees’ wages that employers pay for UI programs is expected to at least double over the next two to three years, benefits advisors predict, wrote Stephen Miller in SHRM in May.
So far, Texas, which paid $8.7 billion in state unemployment compensation benefits on behalf of experience rated employers between Oct. 1, 2019 and September 30, 2020, has avoided any sharp payroll tax increases and has opted for stability in the near-term.
This decision gives stability and predictability to our UI tax structure, said TWC Commissioner Representing Employers Aaron Demerson in June. Texas employers and Business leaders look forward to that stability especially after a year of rampant uncertainty. This gives them the capacity they need to hire, expand and get Texas economy back on track.
Since 2012, the Texas taxable wage base remains at $9,000 for UI and the maximum UI Texas unemployment tax rate has fallen with the minimum going from 0.61 percent to 0.31 percent and the maximum falling from 7.58 percent to 6.31 percent.
During that same timeframe the average experience tax rate fell from 1.87 percent in 2012 to 0.93 percent last year.
Minimum Wage Rules In Texas
The minimum wage in Texas is $7.25 an hour, which aligns with the federal minimum wage amount. Exemptions include those covered under the federal Fair Labor Standards Act and the following:
- Individuals employed by religious, educational, charitable, or nonprofit organizations
- Professionals or salespersons
- Employees working in amusement and recreational establishments
- Employees working for non-agricultural employers not liable for state unemployment contributions
- Employees employed in dairying and the production of livestock
- Employees in sheltered workshops
Commission & Bonus Amounts
If you pay an employee commission or a bonus, you are required to set up a clear written agreement laying out the details of the payment arrangement. This doesnt mean the amounts have to be set in stone, and theres no minimum amount. However, you are not allowed to make any changes retroactivelyonly for future payments.
For more information about Texas minimum wage and related rules, visit the Texas Wage Law page on the Texas Workforce Commission website.
Approved Deductions That May Drop an Employees Pay Below Minimum Wage
Texas, as do all states, enforces its minimum wage laws. And at times, payroll deductions can cause an employees pay to fall below that amount. In these cases, there are specific scenarios that the TWC will allow the deduction without penalizing the employer, but there are others that are illegal.
Texas Sets Employer 2021 Unemployment Tax Rates
The Texas Workforce Commission set the 2021 employers unemployment insurance tax rate in mid-June after a four-month delay as the state waited to see how the economic recovery progressed before setting Texas State Unemployment Tax Act Rates. The rate set is retroactive to January 1 for all employers in the state.
The TWC announced it was setting the 2021 UI rate at pre-pandemic levels to protect the Texas Unemployment Compensation Trust Fund solvency while reducing tax burden on Texas businesses.
The TWC announced that the UI replenishment tax rate would be 0.18 percent and the deficit tax rate would be 0.0 percent. The Obligation Assessment was set to 0.03 percent to recover any federal interest due on Title XII loans in the fall.
The combination of the replenishment rate and obligation assessment equals the 2020 replenishment rate of 0.21 percent.
File Scheduled Tax Reports And Payments
In Texas, UI tax reports and payments are due a month after the close of each calendar quarter. In other words, UI tax reports are due by the following dates:
For Wages Paid During
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Submit Your Documents To Twc
If TWC asked you to provide documents, you can upload them using our online UI Submission Portal.
You will need to input your personal information on the portal, then select the type of submission you want to make from a drop-down menu. The portal also provides a list of the file types you can upload. Make sure to select the Submit button at the top of the page when you are done.
WARNING: Do not use this portal to submit your appeal or any appeals documents. You must submit your appeal online using Unemployment Benefits Services , by mail, by fax, or in person at a Workforce Solutions office. Learn about submitting an appeal at: How to Appeal a Decision.
Running Payroll In Texasstep By Step Instructions
Running payroll in Texas is a little different from running payroll in other states, but its not typically extra work.
Step 1: Set up your business as an employer. Get your companys Federal Employer Identification Number . If your company is brand-new, you may need to apply for a FEIN. This is a simple process that can be completed online via the Electronic Federal Tax Payment System . If you work for a company that already has one, keep the FEIN handy. The FEIN is required to pay federal taxes.
Step 2: Register with the Texas Workforce Commission . You need to register online within 10 days of the first check date to get your TWC Account Number.
If you use a third-party payroll administrator, then you need to register them as your payroll administrator. Go to the TWC Unemployment Tax Services site and click on Sign up for User ID or log on. Once you are in, grant permissions to your payroll provider, being sure to assign Manage Wage Report permissions.
Step 3: Create your payroll process. If you work for an established business, you may have inherited a payroll process. But if your company is brand-new, you may need to start your payroll process, which means deciding how often youll be paying employees, when youll pay them, how youll track and calculate hourly employees work time, etc.
|For Wages Paid During
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Register With The Texas Workforce Commission
As a Texas employer subject to UI tax, your small business must register with the Texas Workforce Commission so you can obtain a TWC tax account number. You must register with the TWC within 10 days of becoming liable for UI tax. The TWC prefers that you register online, but you can also register by mail. To register online, go to the Unemployment Tax Registration section of the TWC website. The process should take about twenty minutes. To register by mail, use Form C-1, Status Report. You can download a blank Form C-1 from the Tax Forms & Instructions section of the TWC website. Once registered, you’ll be issued a tax account number. There is no fee to register your business with TWC.
Employers Cannot View Unemployment Insurance Tax Rates Until February 2021
2020 brought a long list of concerns for Texas employers one our firm hears frequently is whether an employers unemployment insurance tax rate will increase dramatically due to increased claims. The Texas Workforce Commission acknowledged this concern earlier this month, stating it is explor options to keep the 2021 tax rates as low as possible for Texas employers as Texas and the entire nation continue to deal with the economic disruptions of the COVID-19 pandemic. The TWC further raised the Congressional relief legislation as a possible ameliorating factor for keeping tax rates low.
Typically, tax rates are released in Decemberbefore the new year. Employers typically pay the State of Texas a percentage of the first $9,000 in employee wages as an unemployment tax. The minimum and maximum tax rates are set annually. In 2020, the minimum rate was 0.31% and the maximum rate was 6.31%. Only one element of an employers rate is based on the employers actual experience, while other elements are based on the health of the unemployment fund and repayment of bonds issued to fund the unemployment payments.
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How To Get Started
- Must have an unemployment tax employer account number , also called a state identification number and a federal identification number. If you do not have an EAN, you can apply for an EAN online.
- to establish a User Login ID and password to access the Wage Reporting and Tax Services sections. Keep your User Login ID and password available for ready access.
- Your computer must have the following in order to use our online services:
- Internet Explorer version 6.5 or above
- Allow cookies
- Pop-Up Blocker turned off
Twc Internet User Id& Password
To file wage reports online using Unemployment Tax Services requires registration. During the quick and simple registration process, users create a User ID and password to use each time they access the online system. To register and to learn about other online services, visit Unemployment Tax Services.
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Unemployment Benefits Identity Theft
If you are not claiming unemployment benefits and have information that a claim was filed using your identity, you should report the ID theft claim on TWCs online portal. Go to Unemployment Benefits ID Theft for more information.
Verify Your Claim
If you are claiming unemployment benefits, TWC may ask you to verify your identity through ID.me. If you are claiming unemployment benefits and received a letter from TWC advising you to verify your identity using ID.me, go to ID.me to verify your identity on a claim you filed.
If you have an active claim, request a benefits payment.
About Texas Workforce Commission
Texas Workforce Commission is the state agency charged with overseeing and providing workforce development services to employers and job seekers of Texas. TWC strengthens the Texas economy by providing the workforce development component of the Governor’s economic development strategy. Texas boasts an incredibly skilled workforce ready to attract enterprise to the Lone Star State. By focusing on the needs of employers, TWC gives Texas the competitive edge necessary to draw business here.
Our mission is to promote and support a workforce system that creates value and offers employers, individuals, and communities the opportunity to achieve and sustain economic prosperity. Our TWC Mission, Vision and Philosophy give more information about our goals and core beliefs.
TWC is part of Texas Workforce Solutions, a local and statewide network comprised of the agency, 28 workforce development boards, and their contracted service providers and community partners. This network gives customers local access to workforce solutions and statewide services at numerous Workforce Solutions offices. TWC provides unemployment benefits services through five Tele-Centers and administers unemployment tax through numerous local tax offices.
Workforce development includes the oversight and support of an employer-driven, integrated system that consolidates employment, job training and work-related services including the regulation of career schools.
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How Can The Account Administrator Allow Someone To Submit The Employer’s Quarterly Wage Reports But Prevent Access To The Bank Account Information
The account administrator will logon to Unemployment Tax Services, select the User Admin tab, select the User List link, select the View Profile link, and then select the Edit Permissions link. To allow someone to submit a quarterly wage report, ensure that the person has Manage Wage Reports permission. To prevent access to the bank account information, ensure that the permissions are not granted for any of the following: Make Payment, View Payment and Bank Information.
Add To Existing Company Setup
Submit a request to your service team to add TXSUI to your company setup. Please include the below with your request:
Texas Workforce Commission
- Unemployment Account Number and Tax rate. This can be found on a Tax Rate Notice or the Quarterly contribution report. If youre unsure of your tax rate or account number, you can call the agency at 800-832-9394.
- Power of Attorney- POA is required, please obtain the prefilled form from your client service representative.