Payroll is one of the most regulated and legally complex functions in any business. For Texas employers, it involves not only federal requirements Social Security, Medicare, federal income tax withholding, and federal unemployment tax (FUTA) but also state-specific obligations including Texas Unemployment Tax (TWC) and compliance with the Texas Payday Law.
A single payroll error can result in IRS penalties, Texas Workforce Commission (TWC) audits, and employee lawsuits. As your workforce grows, so does your compliance burden. This guide explains what Texas employers need to know in 2026 and how to build a bulletproof payroll system.
Employers must withhold 6.2% for Social Security and 1.45% for Medicare from each employee’s wages, and match these amounts from company funds. The Social Security wage base for 2026 is $176,100. Employers also pay an additional 0.9% Medicare surtax on wages over $200,000 per employee.
Employers must withhold federal income tax based on each employee’s Form W-4 (Employee’s Withholding Certificate). The amount varies by filing status, pay frequency, and claimed adjustments. Employers must deposit these funds with the IRS through EFTPS on a schedule determined by their deposit liability.
FUTA is paid entirely by the employer at a rate of 6% on the first $7,000 of each employee’s wages. Employers who pay their state unemployment tax on time receive a credit of up to 5.4%, reducing the net FUTA rate to 0.6%.
For complete federal payroll tax guidance, see IRS Publication 15 (Employer’s Tax Guide).
Texas employers pay State Unemployment Tax (SUTA) to the Texas Workforce Commission (TWC). The tax rate for new employers in 2026 is 2.7% on the first $9,000 of each employee’s wages. Established employers are assigned experience-rated tax rates based on their claims history.
TWC unemployment tax reports and payments are due quarterly by April 30, July 31, October 31, and January 31. Failure to file on time results in penalties and interest, and can increase your future SUTA rate.
The Texas Payday Law regulates how and when employers must pay their employees. Texas employers must establish a regular payday and notify employees in writing. Final paychecks for discharged employees must be paid within six days. Resigned employees must receive their final paycheck by the next regular payday.
The IRS requires employers to deposit withheld payroll taxes on either a monthly or semi-weekly schedule, based on your total tax liability from a lookback period. Semi-weekly depositors (those with more than $50,000 in annual payroll tax liability) must deposit within one to three business days of payroll.
Late payroll tax deposits are subject to a penalty ranging from 2% to 15% depending on how late the deposit is. These penalties are strictly enforced and can accumulate quickly for small businesses.
By January 31 of each year, employers must provide W-2 forms to all employees and file copies with the Social Security Administration. Late W-2 filing results in penalties starting at $60 per form and increasing based on how late the filing is submitted.
Year-end payroll reconciliation ensuring that your quarterly 941 filings match your W-2 totals and your general ledger is critical to avoid IRS matching notices and discrepancy letters.
Many Texas small businesses outsource payroll to professionals like FAS Accounting Services for three main reasons: accuracy, time savings, and compliance. When payroll is your responsibility, a single missed deposit or incorrect W-2 can cost more in penalties than a year of professional payroll service.
Texas employers must withhold federal income tax, Social Security (6.2%), and Medicare (1.45%) from employee wages and match the FICA amounts. They must also pay FUTA (federal unemployment tax) and Texas SUTA (state unemployment tax) to the TWC, and comply with the Texas Payday Law.
The Texas Workforce Commission administers the Texas state unemployment insurance program. Texas employers must register with the TWC, pay quarterly SUTA taxes, and file quarterly wage reports. Non-compliance results in penalties and can affect your experience-rated SUTA tax rate.
W-2 forms must be provided to employees and filed with the Social Security Administration by January 31 each year. Late filing results in IRS penalties starting at $60 per form.
Deposit frequency depends on your total payroll tax liability during a lookback period. Monthly depositors must deposit by the 15th of the following month. Semi-weekly depositors must deposit within 1-3 business days of payroll. Very large employers may have next-day deposit requirements.
For most Texas small businesses with more than two or three employees, outsourcing payroll is cost-effective. Professional payroll services eliminate deposit errors, ensure W-2 accuracy, maintain TWC compliance, and free up significant time typically costing less than the penalties from a single payroll mistake.
