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Payroll Tax in Texas: Complete Guide 2026

Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.

Texas is one of the most business-friendly states in the nation when it comes to payroll taxes. The state has no individual income tax, which means there is no state income tax withholding from employee paychecks. The primary state-level payroll tax in Texas is the Unemployment Insurance (UI) tax, which is paid exclusively by employers. Combined with federal payroll taxes (Social Security and Medicare), Texas employers face a simpler payroll compliance burden than employers in most other states.

Texas Payroll Tax Rates (2026)

Employer-Paid State Taxes

Tax	Rate	Wage Base
Unemployment Insurance (UI)	~0.31% — ~6.31%	First ~$9,000 per employee
New employer UI rate	~2.70%	First ~$9,000
Obligation Assessment	~0.10%	First ~$9,000

Employee-Paid State Taxes

Tax	Rate
State income tax withholding	None — Texas has no state income tax
State disability insurance	None
Paid family leave	None

Combined Federal and State Overview

Tax	Rate	Paid By	Wage Base
Social Security (OASDI)	~6.20%	Employee + ~6.20% employer	~$176,100
Medicare	~1.45%	Employee + ~1.45% employer	No cap
Additional Medicare	~0.90%	Employee only	Over ~$200,000
Texas UI	~0.31% — ~6.31%	Employer only	~$9,000
Obligation Assessment	~0.10%	Employer	~$9,000

How Texas Payroll Taxes Work

No State Income Tax Withholding

The most significant feature of payroll in Texas is the absence of state income tax. Employers do not withhold any state income tax from employee wages, and employees do not file state income tax returns. This simplifies payroll processing and makes Texas particularly attractive for both employers and employees.

Unemployment Insurance (UI)

Texas UI is the only state payroll tax, and it is entirely employer-funded. The tax applies to the first ~$9,000 of each employee’s annual wages. Rates are experience-rated based on the employer’s history of unemployment claims.

Rate structure:

New employers: Assigned a default rate of ~2.70% for the first year. Construction industry new employers may receive a higher initial rate of ~2.70% to ~6.31%.
Experienced employers: After enough claims history is established (typically ~18 months), rates are adjusted based on a chargeback ratio. Rates range from ~0.31% (minimum) to ~6.31% (maximum).
Voluntary contributions: Employers can make voluntary contributions to the Texas Workforce Commission (TWC) to reduce their experience-rated UI rate.

Obligation Assessment

In addition to the UI tax, Texas imposes a small Obligation Assessment of ~~0.10% on the same wage base (~~$9,000) to fund the state’s UI trust fund replenishment. This assessment is applied to all covered employers.

Federal Unemployment Tax (FUTA)

While not a Texas-specific tax, employers must also pay the federal FUTA tax of ~6.00% on the first ~$7,000 of each employee’s wages. A credit of up to ~5.40% is available if the state UI program is in good standing, effectively reducing the FUTA rate to ~0.60%.

Employer Registration and Compliance

Texas employers must register with the Texas Workforce Commission (TWC) when they first begin paying wages. Key compliance requirements:

Quarterly reporting: File Form C-3 (Employer’s Quarterly Report) each quarter, reporting wages and UI contributions.
Payment schedule: UI taxes are due by the last day of the month following each quarter (April 30, July 31, October 31, January 31).
Wage reporting: Report wages for all employees, even those exempt from UI coverage.
Record retention: Maintain payroll records for at least ~4 years.
Electronic filing: Employers with ~10 or more employees may be required to file electronically through the TWC’s online system.

Comparison to National Average

State	State Income Tax Withholding	UI Wage Base	Disability/PFL
Texas	None	~$9,000	None
California	Yes (up to ~13.30%)	~$7,000	SDI + PFL
New York	Yes (up to ~10.90%)	~$12,800	DBL + PFL
Florida	None	~$7,000	None
Illinois	Yes (~4.95% flat)	~$13,590	None
National average	Varies	~$16,500	Varies

Texas’s lack of state income tax withholding and absence of disability or paid family leave programs make it one of the lowest state payroll tax environments in the country. The UI wage base of ~$9,000 is also below the national average.

Tips for Managing Texas Payroll Tax

Monitor your UI experience rate. Your rate adjusts annually based on claims history. Contest unjustified claims promptly with the TWC to keep your rate low.
Consider voluntary contributions. If your experience rate is higher than desired, making a voluntary contribution to the TWC can lower your rate for the coming year.
File and pay on time. Late filings trigger penalties and interest. Use the TWC’s online system for timely quarterly filing.
Classify workers correctly. Texas uses a common-law test for worker classification. Misclassifying employees as independent contractors results in back taxes and penalties.
Track the ~$9,000 wage base. Once an employee’s wages exceed ~$9,000 for the year, no further UI contributions are required for that employee.
Plan for federal FUTA. Ensure Texas remains a credit-reduction-free state so you receive the full ~5.40% FUTA credit.
Take advantage of no withholding requirements. The absence of state income tax withholding simplifies payroll processing, but ensure federal withholding and FICA are properly calculated.

Key Takeaways

Texas has no state income tax, so there is no state income tax withholding from employee paychecks.
The only state payroll tax is Unemployment Insurance, paid by employers at ~0.31% to ~6.31% on the first ~$9,000 of wages.
An additional Obligation Assessment of ~0.10% applies to the same wage base.
Texas does not require state disability insurance or paid family leave.
New employers are assigned a default UI rate of ~2.70%.
The low payroll tax burden makes Texas one of the most employer-friendly states in the nation.

Next Steps

Federal Income Tax Guide 2026 — Understand federal payroll tax obligations that apply in Texas.
Self-Employment Tax Guide — Federal self-employment taxes still apply in Texas.
State Income Tax Rates Comparison 2026 — See how Texas compares to income-tax states.
Tax Bracket Calculator — Estimate your federal-only tax liability as a Texas resident.
Find a CPA Near You — Get help with Texas payroll compliance.