The Complete Guide To Texas State Income Tax & Payroll Taxes

Texas is one of the simpler states for payroll taxes because it doesn’t have state income tax withholding. However, Texas employers may still need to handle federal payroll taxes, Texas unemployment tax, wage reporting, new-hire reporting, and state payday law requirements.

This guide breaks down what Texas employers need to know about payroll taxes and labor laws, including unemployment tax, minimum wage, payday rules, and payroll compliance basics.

Federal & State Payroll Taxes In Texas

Texas is simpler than many states for payroll taxes because it does not have state income tax withholding. Employers also do not need to withhold local income taxes for Texas employees.

However, Texas employers still need to handle federal payroll taxes, Texas unemployment tax, new-hire reporting, wage reporting, and any required deductions such as garnishments or child support.

Here are the main payroll taxes Texas employers need to know.

Texas businesses may also be responsible for other business taxes, such as franchise tax or sales and use tax, but those are separate from payroll taxes.

Texas Payroll Tax Exclusions & Exemptions

Texas does not have state income tax, so employers do not need to withhold Texas income tax from employee wages. Texas also does not have local income tax withholding.

However, Texas employers may still be responsible for state unemployment tax. Liable employers must register with the Texas Workforce Commission, file quarterly wage reports, and pay unemployment tax on the first $9,000 paid to each employee in a calendar year.

Texas businesses may also be responsible for other taxes, such as franchise tax, sales tax, or property tax, but those are separate from payroll taxes. For example, the Texas franchise tax no-tax-due threshold is $2.65 million for 2026 and 2027, but franchise tax should not be treated as a payroll tax.

Texas Labor Laws & Other HR Requirements

In addition to payroll taxes, Texas employers must follow federal and state labor laws covering wages, paydays, overtime, child labor, new-hire reporting, workers’ compensation, and workplace notices.

Here are the main Texas labor and HR requirements employers should know.

How To Calculate Payroll Taxes In Texas

Running payroll in Texas is simpler than in many states because Texas does not have state income tax withholding. However, employers still need to calculate federal payroll taxes, pay Texas unemployment tax, report new hires, follow payday rules, and keep accurate payroll records.

Step 1: Review Texas Payroll Requirements

Texas employers must handle federal payroll taxes, Texas unemployment tax, new-hire reporting, and required payroll deductions such as garnishments or child support.

Texas does not require state or local income tax withholding, but liable employers must pay Texas unemployment tax on the first $9,000 paid to each employee in a calendar year.

Step 2: Gather Employee Payroll Documents

Before running payroll, collect the documents and information needed to pay employees correctly, including:

• Form W-4 for federal income tax withholding
• Form I-9 to verify employment eligibility
• Direct deposit information, if applicable
• Employee pay rate, pay schedule, and classification
• Benefits, retirement, garnishment, or other deduction information

Step 3: Calculate Gross Pay

Calculate each employee’s gross pay based on their pay type. For hourly employees, multiply hours worked by the hourly rate and include overtime when required. For salaried employees, divide the annual salary by the number of pay periods.

Be sure to include bonuses, commissions, tips, PTO, sick leave, reimbursements, or other taxable compensation when applicable.

Read our complete guide on how to calculate payroll if you need additional help.

Step 4: Calculate Taxes & Deductions

Texas employers must withhold federal income tax based on each employee’s Form W-4.

Employers and employees also pay FICA taxes. For 2026, Social Security tax is 6.2% for both employer and employee up to the $184,500 wage base. Medicare tax is 1.45% for both employer and employee, with no wage cap. Employers must also withhold the 0.9% Additional Medicare Tax from employee wages over $200,000.

Texas unemployment tax is paid by the employer, not deducted from employee wages. For 2026, Texas UI tax rates range from 0.32% to 6.32%, with a 2.70% new employer rate, applied to the first $9,000 in wages per employee.

Finally, subtract any required or employee-authorized deductions, such as benefits contributions, retirement contributions, wage garnishments, or child support.

Step 5: Pay Employees

After calculating gross pay, taxes, deductions, and net pay, pay employees by direct deposit, paper check, payroll card, or another allowed payment method.

Under the Texas Payday Law, exempt executive, administrative, and professional employees must generally be paid at least once per month. Other employees must generally be paid at least twice per month on regularly scheduled paydays.

Step 6: Keep Payroll Records

Keep payroll records organized and secure. Records should include employee names, Social Security numbers, addresses, pay rates, hours worked, pay periods, payment dates, deductions, and tax records.

The IRS generally requires employment tax records to be kept for at least four years, while FLSA payroll and wage records may have separate federal retention requirements.

Texas Payroll Tax Resources

For more information on Texas payroll taxes, wage rules, and employer requirements, start with the Texas Workforce Commission for unemployment tax, wage reporting, payday law, minimum wage, child labor, and new-hire reporting guidance. The Texas Comptroller is the best source for non-payroll business taxes, including franchise tax and sales tax.

For federal payroll tax rules, use IRS Publication 15 for employer tax responsibilities, IRS Publication 15-T for federal income tax withholding, and IRS Publication 15-A for supplemental employer tax guidance. The U.S. Department of Labor also provides guidance on FLSA minimum wage, overtime, and payroll recordkeeping rules.