Texas Payroll Tax 101 (2025): The Ultimate Guide for Small Business Owners By TexasPayroll.com — Powered by BrightPath Pay & People Solutions

If you're hiring employees in Texas—even if you only have one—understanding payroll taxes is the foundation of clean, compliant payroll.

Texas is one of the simplest states in the country, but “simple” doesn’t mean easy. Federal rules still apply, unemployment rates change, and mistakes can trigger IRS letters or Texas Workforce Commission penalties.

This guide breaks everything down in plain English, so you can run payroll accurately and confidently in 2025.

What Payroll Taxes Exist in Texas?

Texas has:

• No state income tax

• No local income taxes

• No city payroll taxes

But employers must still handle all federal payroll taxes and Texas unemployment tax.

Texas Payroll Tax Summary

Tax Type	Employee Pays	Employer Pays
Federal Income Tax	✔	❌
Social Security	✔	✔
Medicare	✔	✔
FUTA	❌	✔
Texas SUTA	❌	✔

Federal Payroll Taxes You Must Withhold

Federal Income Tax Withholding

Based on the W-4, IRS withholding tables, and pay frequency.

Social Security Tax

• Employee: 6.2%

• Employer: 6.2%

• 2025 wage base: $172,200

Medicare Tax

• Employee: 1.45%

• Employer: 1.45%

• Additional 0.9% after $200,000 in wages

Together, FICA totals 7.65% for both the employee and employer.

Employer Payroll Taxes in Texas

Texas employers pay:

• Employer share of FICA

• FUTA

• Texas SUTA

FUTA (Federal Unemployment Tax)

• Base rate: 6%

• After Texas credit: 0.6%

• Applied to first $7,000 in wages

• → $42 per employee per year

  
  

Texas SUTA (State Unemployment Tax)

2025 Texas Unemployment Insurance Tax Rates

• New employer rate: 2.7%

• Wage base: $9,000

• Experience rates range from 0.23% to 6.31%

Example: $9,000 × 2.7% = $243 per employee

📌 Official TWC Resource — 2025 Texas Unemployment Insurance Tax Rates

To verify your exact 2025 Unemployment Insurance (UI) tax rate or look up details for your account, use the Texas Workforce Commission’s official tax rate page:

👉 https://www.twc.texas.gov/programs/unemployment-tax/tax-rates

County-Level Payroll Compliance in Texas (2025)

Texas has no county payroll taxes, but counties vary widely in enforcement trends, audit activity, and business compliance requirements. These differences affect payroll, HR, and employer risk.

This is where TexasPayroll.com provides clarity that most national payroll blogs overlook.

⭐ Harris County (Houston) — Business Personal Property Requirement

Businesses operating in Harris County must file a Business Personal Property (BPP) Rendition with HCAD by April 15 if they own equipment, inventory, or office furniture used for business.

Applies to:

• LLCs & corporations

• Sole proprietors

• Home-based businesses

• Remote employees with company equipment

• Retail, service, tech, and trade businesses

Reportable assets include:

• office desks & furniture

• computers, printers, POS equipment

• tools & machinery

• inventory & supplies

Why this exists

Texas counties rely on property tax revenue because Texas has no state income tax.

Penalties for not filing

• 10% penalty

• HCAD assigns its own (often higher) value

• higher future tax assessments

• increased audit likelihood

Many small businesses learn about this requirement only after receiving an unexpected HCAD tax bill.

⭐ Dallas County — High Enforcement of Worker Misclassification

Dallas County ranks among the top three regions in Texas for misclassification enforcement by both the U.S. Department of Labor (DOL) and the Texas Workforce Commission (TWC).

Documented Enforcement Example (Dallas, 2023)

A Dallas construction company was ordered to pay over $1.1 million in back wages and damages after a DOL investigation found that more than 300 workers were improperly classified as independent contractors (WHD Case No. 2521845).

Violations included:

• unpaid overtime

• lack of payroll tax withholding

• improper timekeeping

• misapplied contractor agreements

Industries most frequently audited in Dallas:

• construction

• logistics & warehousing

• transportation

• home healthcare

• staffing firms

Dallas’ contractor-heavy economy creates higher audit exposure than most Texas counties.

⭐ Travis County (Austin) — Documented Overtime & Exemption Violations

Austin is one of the most active regions in Texas for overtime enforcement and employee-classification reviews.

According to the DOL Wage & Hour Division’s enforcement database:

2019–2024 (Austin Metro):

• 150+ federal overtime investigations

• Over $4.2 million in unpaid wages recovered

2022 Enforcement Action (Austin)

In 2022, an Austin-based IT services employer was ordered to pay almost $740,000 in back wages and penalties after DOL investigators determined:

• employees labeled “exempt” did not meet exemption criteria

• overtime was not paid

• no time records were maintained for remote/hybrid staff

• salaried employees were treated as automatically exempt

Hospitality Enforcement (Austin, 2021)

A downtown Austin restaurant group paid $565,000 following a joint audit by the City of Austin and the DOL during peak hiring season.

Industries at highest risk in Austin:

• tech & software

• hospitality & events

• trades & field service

• creative agencies

• staffing companies

Austin frequently conducts targeted sweeps around large events (SXSW, ACL, F1), making it one of the most monitored regions in Texas.

⭐ El Paso County — Extra Payroll Requirements for Municipal Work

El Paso employers working on city, county, or public-works contracts face additional payroll compliance rules.

Required under Texas law:

✔ Workers’ compensation coverage (Texas Labor Code §406)

✔ Certified payroll reports (Texas Gov. Code §2258)

✔ Safety training documentation aligned with OSHA standards

Enforcement Action (El Paso, 2023)

A contractor was removed from a county infrastructure project and fined over $112,000 after failing to:

• maintain required workers’ comp

• provide accurate certified payroll reports

Industries most impacted:

• construction

• utilities

• specialty trades

• public infrastructure contractors

⭐ Rural Texas Counties — Manual Payroll Mistakes Lead to TWC Corrections

According to TWC’s 2023 annual report, more than 84,000 unemployment tax corrections were issued — with a significant number originating from rural employers still doing payroll manually.

Common errors:

• incorrect SUTA wage calculations

• FUTA wage base reset errors

• day-rate pay not converted to hourly

• overtime not calculated at 1.5×

• missing new-hire reports

• long-term underreported wages

Real Case (East Texas, 2022)

A family-owned manufacturer owed $27,000 after TWC corrections revealed three years of underreported unemployment tax wages.

Industries impacted:

• agriculture

• small retail

• independent service businesses

• family-owned operations

• small manufacturers

Manual payroll tends to work “until it doesn’t,” and TWC often sends correction letters covering multiple years at once.

Payroll Tax Due Dates in Texas (2025)

IRS Deposits — Monthly or semi-weekly, depending on liability

FUTA — Quarterly (if > $500)

Texas SUTA — Quarterly:

• April 30

• July 31

• October 31

• January 31

Payroll Tax Calculation Example

Employee earns $1,200 weekly, married filing jointly, works in Houston.

Employee Pays

Federal income tax: $98.00

Social Security:

$74.40

Medicare: $17.40

Total: $189.80

Employer Pays

Social Security: $74.40

Medicare: $17.40

FUTA: $7.20

SUTA (2.7%): $32.40

Common Payroll Mistakes in Texas

❌ Misclassifying employees

❌ Incorrect unemployment tax calculations

❌ Missing multi-state rules

❌ FUTA wage base mistakes

❌ Not verifying processor calculations

Best Practices for Clean Texas Payroll

✔ Register with IRS & TWC

✔ Verify classifications every year

✔ Double-check SUTA each quarter

✔ Keep W-4, I-9, time records

✔ Stay informed of Texas rule changes

⭐ About the TexasPayroll.com Editorial Team

The TexasPayroll.com Editorial Team consists of Texas-based Payroll Professionals, HR Compliance Researchers, and Employment Law Analysts dedicated to helping business owners run clean, compliant, and stress-free payroll. Our mission is to deliver simple, accurate, and Texas-specific guidance for employers — from small startups to growing multi-location companies across the state.

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