Texas Payroll Taxes Explained for Small Businesses (2026 Guide)
- TexasPayroll.com Editorial Team
- Mar 11
- 6 min read
Payroll is funny.
Not “haha” funny - more like “why am I reading IRS deposit rules at 11:47 p.m.” funny.
And in Texas, payroll sounds simple at first. . . until you realize something important:
Texas may not have a state income tax, but payroll still comes with real taxes, real deadlines, and real penalties.
So if you’re a Texas business owner, the question isn’t whether payroll taxes exist.
The real question is:
Which ones apply to you - and when do you have to deal with them?
This guide breaks down Texas payroll taxes in 2026 in plain English so small businesses can understand:
• What taxes apply to Texas employers
• What the 2026 payroll tax rates actually are
• When payroll taxes must be deposited
• Common payroll mistakes Texas employers make
• How unemployment tax assessments support workforce programs
If you're new to payroll, you may also want to read our related guide here:
https://www.texaspayroll.com/post/how-to-choose-a-payroll-provider-in-texas-brightpath-payroll-guide
The Truth About Payroll Taxes in Texas
You’ve probably heard someone say:
“Texas doesn’t have payroll taxes.”
That statement is technically true - but it leaves out an important detail.
Texas does not have a state income tax. That means employers generally do not withhold state income tax from employee paychecks.
However, Texas employers still deal with several payroll-related taxes.
Most fall into two categories.
Federal payroll taxes
These apply to employers in every state.
• Federal income tax withholding
• Social Security tax
• Medicare tax
• Federal Unemployment tax (FUTA)
Texas payroll taxes
Texas only has one major employer payroll tax:
• Texas unemployment tax - Administered by the Texas Workforce Commission (TWC)
You can review Texas unemployment tax rates directly from the Texas Workforce Commission here:
So while Texas removes one layer of payroll complexity, employers still need to manage federal payroll taxes and unemployment taxes carefully.
Why Texas Has One of the Lowest Payroll Tax Burdens in the U.S.
Even though employers still pay federal payroll taxes, Texas is widely considered one of the most business-friendly states for payroll and employment taxes.
There are several reasons for this.
No state income tax withholding
Many states require employers to withhold state income taxes from employee wages.
This creates additional payroll responsibilities such as:
• State withholding calculations
• Additional tax deposits
• Extra quarterly and annual filing requirements
Because Texas does not have a state income tax, employers avoid an entire layer of payroll administration.
Fewer payroll tax accounts to manage
In many states, employers must maintain separate accounts for:
• State income tax withholding
• State unemployment tax
• Disability insurance taxes
• Workforce development taxes
In Texas, employers generally only manage one state-level payroll tax account - unemployment insurance through the Texas Workforce Commission.
This significantly simplifies payroll compliance.
Relatively low unemployment tax wage base
Texas unemployment tax is applied only to the first $9,000 of wages per employee per year.
Some states apply unemployment taxes to much higher wage bases, which increases employer payroll costs.
By comparison, Texas’ lower wage base keeps unemployment tax costs relatively modest for many employers.
Predictable tax structure
Texas payroll taxes are also relatively predictable.
Because the state relies primarily on unemployment insurance contributions rather than multiple employment taxes, employers can more easily estimate payroll tax costs when budgeting for new hires.
This is one reason Texas consistently ranks among the most business-friendly states for employers.
2026 Payroll Tax Rates That Matter
Social Security Tax (2026)
For 2026, the Social Security wage base is $184,500.
The official wage base announcement can be found here:
Social Security tax applies only to the first $184,500 of wages per employee per year.
The rate is:
• 6.2% paid by the employee
• 6.2% paid by the employer
Because both sides contribute, Social Security is often described as a shared payroll tax.
Medicare Tax (2026)
Medicare payroll taxes fund healthcare coverage for retirees and certain disabled individuals.
Unlike Social Security, Medicare has no wage base limit.
The Medicare tax rate is:
• 1.45% paid by the employee
• 1.45% paid by the employer
More details are available from the IRS here: https://www.irs.gov/taxtopics/tc751
Additional Medicare Tax
Once an employee earns more than $200,000 in a calendar year, employers must begin withholding an additional 0.9% Medicare tax.
Full IRS guidance is available here: https://www.irs.gov/taxtopics/tc560
Employers do not match this additional 0.9% tax.
Texas Unemployment Tax (TWC)
Texas unemployment tax is the primary payroll tax paid to the state.
For 2026:
• Employers pay unemployment tax on the first $9,000 of wages per employee
• Tax rates range from 0.32% to 6.32%
• The new employer rate is 2.70%
Additional details about these rates are available here:
Example:
If a new Texas employer hires an employee earning $50,000 per year, unemployment tax only applies to the first $9,000 of wages.
$9,000 × 2.70% = $243 per employee per year
Additional Components of Texas Unemployment Tax: UOA and ETIA
In some years, the unemployment tax rate assigned to Texas employers may include additional assessments.
Two of the most common are:
• UOA (Unemployment Obligation Assessment)
• ETIA (Employment and Training Investment Assessment)
These assessments are administered by the Texas Workforce Commission and may appear as part of the employer’s unemployment tax rate calculation.
UOA - Unemployment Obligation Assessment
The Unemployment Obligation Assessment (UOA) helps support the Texas Unemployment Compensation Trust Fund.
This trust fund is the account used to pay unemployment benefits to workers who qualify for unemployment insurance.
During economic downturns, unemployment claims can increase significantly. The UOA helps maintain the stability of the unemployment insurance system and ensure benefits can continue to be paid when claim activity rises.
Employers typically do not calculate this assessment separately. Instead, it may be included within the unemployment tax rate assigned by the Texas Workforce Commission.
ETIA - Employment and Training Investment Assessment
The Employment and Training Investment Assessment (ETIA) funds workforce training and employment development programs across Texas.
Money collected through ETIA is deposited into the Employment and Training Investment Holding Fund, which supports programs designed to help Texans gain job skills and return to work.
Programs supported through this fund can include:
• Workforce development initiatives
• Job retraining programs
• Employment placement services
• Regional workforce board programs
Workforce Training Programs Supported by ETIA
Funds from the Employment and Training Investment Holding Fund support several workforce training initiatives in Texas.
Examples include:
• Skills Development Fund programs, which provide customized training grants for employers and community colleges
• Skills for Small Business programs, which help small businesses train employees through partnerships with local colleges
These programs focus heavily on industries experiencing workforce shortages such as manufacturing, healthcare, construction, transportation, and skilled trades.
The Jobs and Education for Texans (JET) Grant Program
The Jobs and Education for Texans (JET) Grant Program provides grants to Texas schools and community colleges so they can purchase training equipment for career and technical education programs.
Examples of equipment funded through JET grants include:
• Welding and manufacturing training equipment
• Healthcare simulation labs
• Electrical and construction training tools
• Transportation and logistics training equipment
Although the JET program operates within the broader workforce system overseen by the Texas Workforce Commission, it is funded primarily through state appropriations rather than employer unemployment taxes.
Bulk Filing and Payroll Provider Processing Deadlines
Many payroll providers submit tax filings using bulk electronic filing systems.
Instead of transmitting each employer return individually, payroll processors group thousands of filings together and submit them in scheduled batches to agencies such as the IRS or the Texas Workforce Commission.
Because these filings are prepared and transmitted in batches - and because tax payments must also move through banking networks - payroll providers often establish internal processing deadlines that occur before the official government filing deadline.
For employers, this means payroll information usually needs to be submitted several days in advance so it can be included in the next filing batch and processed on time.
Need Help Managing Payroll in Texas?
If you’re reading this and thinking:
"I understand the rules, but I’d rather not manage all of this myself."
That’s completely normal.
Payroll works best when accounts, tax schedules, and reporting requirements are set up correctly from the beginning.
Learn more about our payroll services here:
Final Thoughts
Texas may not have a state income tax, but payroll still requires careful attention to federal tax rules, unemployment tax obligations, and deposit schedules.
Understanding how payroll taxes work - including unemployment tax assessments like UOA and ETIA - helps businesses avoid penalties and keep payroll running smoothly.
For many Texas employers, the biggest benefit is avoiding payroll tax penalties and knowing their filings and deposits are handled correctly.
