Texask (TX) State Withholding Information
Payroll in Texas is straightforward compared to other states, with relatively few issues to worry about. The first thing to note about Texas is that it does not have many payroll taxes. In fact, the only payroll tax that needs to be paid is the Texas Unemployment Tax, or TX UI for short. This tax is paid by the company and is not paid by the employee.
Calculating TX State Withholding Tax
TX UI is calculated as a percentage of employee wages. It is paid only by the employee and not by the company. The actual UI rate varies between 0.25% and 6.25%. The default starting rate for new Texas companies is 2.7%. TX UI also has a Wage Limit for the tax. Wage Limit means that only the first $x amount of a particular employee’s wages per year are subject to tax. Once the wages exceed that amount, then you do not need to pay any more taxes for that employee. For TX, the Wage Limit for 2024 is $9,000. The Wage Limit sometimes changes from year to year, but it typically remains the same.
Using the default TX UI rate and wage limit for 2024, that means a new company in TX would need to pay a maximum of $243 per employee. The TX UI is due once a quarter, regardless of how much tax has been accumulated. The tax is due on the last day of the month after the quarter ends. So Q1 taxes would be due April 30th, Q2 would be due July 31st, etc. That means your Q4 taxes are due January 31st of the next calendar year. Since TX UI is an annual tax, most companies pay their UI at the beginning of the year, and then for the rest of the year there would be no more subject wages so no more taxes. However, if a company adds employees constantly throughout the year, there would be new subject wages and as such, the tax would need to be paid in later quarters.
Reporting TX State Withholding Tax
The TX UI is reported to Texas on a quarterly basis on the TX Form C-3. The TX C-3 can be e-filed electronically at the Texas Workforce Commission website or through our system automatically with Managed Service at PaycheckManager. The form itself is straightforward, the company information is listed at the top with a total of wages and taxes for the quarter. Below that, the individual employee contributions are listed. Note that all employees need to be listed, even those who do not have subject wages anymore. You would complete the form showing their Gross wages, but there would be $0 subject wages. If there are more employees that can be listed on the TX C-3, there is another form called the TX C-4 which functions solely as extra space to list employees for that quarter’s C-3. The last important thing to note is that if you had $0 wages in a quarter, you still need to file a $0 value C-3. Failure to file a $0 value return can lead to penalties but no interest since there is no tax to calculate interest on.
Tax payments can be made on the C-3 or on their own at the Texas Workforce Commission website. When you use our Managed Service on PaycheckManager, our system takes care of all of your state requirements for you.
For the most up-to-date information about Texas Unemployment Tax, you can look at the TX state website.
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