Texas Payroll Tax Overview

The following post includes answers to some of the most frequently asked questions about Texas payroll tax.

What organization oversees payroll tax in the state?

The Texas Workforce Commission (TWC) is responsible for administration and collection of payroll taxes.  Employers are required to register with the TWC by the Texas Unemployment Compensation Act.

Who does the state consider an employer?

For payroll tax purposes, Texas defines an employer as an entity that performs one or more of the following:

  • Pays $1,500 or more in total wages in any calendar quarter of the previous or current calendar years
  • Employ at least one employee during one or more days during 20 or more weeks in the previous 12 months
  • Receives the benefits or work product of one or more employees
  • Qualifies as a 501(c)(3) non-profit organization with four or more employees during one or more days during 20 or more weeks
  • Chooses to declare itself an employer
  • Employs individuals covered by the Federal Unemployment Tax Act
  • Operates as an agency of the state of Texas
  • Pays $1,000 or more in total wages in any calendar quarter to domestic employees
  • Employs at least three employees for 20 weeks in a single calendar year or pays at least $6,250 in cash wages in any calendar quarter
  • Employs a seasonal worker on a farm or other agricultural-related business

Employer entities can include but may not be limited to sole proprietorships, partnerships, and corporations.

What types of payroll tax does the state collect?

Payroll tax in Texas is limited to unemployment insurance, which provides a fund to pay unemployment compensation to workers who lose their job.  Employers pay the full amount of unemployment benefits, meaning there is no withholding from an employee’s paycheck for unemployment insurance.

Texas does not impose a personal income tax, nor does Texas collect state disability insurance.

What payroll tax rates are used by the state?

The tax rate for unemployment insurance is based on the age of the employer.  During the first six calendar quarters an employer is in business, employers must withhold for unemployment insurance 2.7% of the first $9,000 in wages paid to each employee.  The tax rate thereafter varies depending on the taxable wages reported to the TWC by the employer and the unemployment compensation claims paid by the employer.

What forms are used for payroll tax?

The TWC uses the following forms:

  • Form C-1, Employer’s Registration Form, for the registration of an employer with the TWC
  • Form C-3, Tax Employer’s Quarterly Report, for the reporting of quarterly withholdings and the remittance of those monies to the TWC
  • Form C-3DOM, Domestic Employer’s Annual Report, for use by employers of only domestic employees

When are payroll taxes and tax forms due?

Employers must file reporting and pay withholding related to unemployment insurance on a quarterly basis.  For each calendar quarter, quarterly reporting and associated withholdings are due to the TWC on April 30, July 31, October 31, and January 31.

If you have questions about your payroll taxes or need help filing the appropriate returns, you may contact a tax attorney by completing the form on this web site or calling the phone number located at the top of this page.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.