“Texas has no income tax” is true, and it is the reason a lot of first-time employers in Dallas underestimate what payroll costs. There is no state income tax to withhold, but you still owe federal payroll taxes on every paycheck, a Texas unemployment tax on each employee, and a set of state wage-payment rules that come with their own deadlines. Here is the complete picture for 2026.
Key Takeaways
- Texas has no state income tax, so there is nothing to withhold for the state.
- Employers pay Social Security at 6.2% on wages up to $184,500 and Medicare at 1.45% on all wages, matching what they withhold from employees.
- FUTA is effectively 0.6% on the first $7,000 of each employee’s wages, about $42 a year, once the state credit applies.
- Texas unemployment tax is paid on the first $9,000 of each employee’s wages. New employers generally start at 2.7%.
- The Texas Payday Law requires non-exempt employees to be paid at least twice a month, and final pay within six days of a discharge.
What Texas does not charge
There is no Texas personal income tax, so there is no state withholding, no state W-4 and no state income tax return for your employees. If you have moved a business here from another state, or you are comparing a Dallas hire with one in California or New York, this is a genuine saving. It does not mean payroll is tax-free.
Federal payroll taxes for 2026
| Tax | Employee pays | Employer pays | Wage limit |
|---|---|---|---|
| Social Security | 6.2% | 6.2% | $184,500 (up from $176,100) |
| Medicare | 1.45% | 1.45% | None |
| Additional Medicare | 0.9% over $200,000 | None | Withhold once wages pass $200,000 in the year |
| FUTA (federal unemployment) | None | 6.0%, less up to 5.4% credit = 0.6% | First $7,000 per employee |
| Federal income tax | Withheld per Form W-4 | None | None |
So for an employee earning $60,000, the employer’s own federal cost is $3,720 of Social Security, $870 of Medicare and $42 of FUTA, before Texas unemployment tax. The FUTA credit depends on your state not being a “credit reduction” state. Texas is not on the Department of Labor’s list of potential credit reductions for 2026; the final list is confirmed in November.
Texas unemployment tax (TWC)
This is the Texas payroll tax, and it is the one new employers most often forget to register for. It is paid entirely by the employer to the Texas Workforce Commission, and you cannot deduct it from employees’ pay.
- Wage base: the tax applies to the first $9,000 each employee earns in the calendar year.
- New employers: your rate is the higher of 2.7% or your industry’s average rate. At 2.7%, that is up to $243 per employee per year.
- Experienced employers: once you have a claims history, TWC assigns a rate each year, and the notice is typically mailed in December. TWC lists the 2026 range as 0.32% to 6.32%.
- What makes up the rate: a general tax rate, a replenishment rate, an obligation assessment, a deficit tax rate, and a 0.1% Employment and Training Investment Assessment. The last one is offset by a matching reduction in the replenishment rate, so it does not raise your total.
When you become liable: generally when you pay $1,500 or more in wages in a calendar quarter, or employ at least one person for some part of a day in 20 different weeks in a year. Different thresholds apply to domestic and agricultural employers. Register with TWC’s Unemployment Tax Services within 10 days of becoming liable. Quarterly wage reports and payments are due by the last day of the month after each quarter ends.
Deposits, forms and deadlines
Federal income tax withheld and both halves of Social Security and Medicare are deposited together through EFTPS on a schedule set by your lookback period. For 2026, that is July 1, 2024 through June 30, 2025.
- $50,000 or less of tax in the lookback period: you are a monthly depositor, due by the 15th of the following month.
- More than $50,000: you are a semiweekly depositor. Wednesday to Friday paydays are due the following Wednesday, and Saturday to Tuesday paydays the following Friday.
- $100,000 or more accumulated on any day must be deposited by the next business day.
| Filing | Due |
|---|---|
| Form 941 (quarterly federal) | April 30, July 31, October 31, January 31. The third-quarter 2026 return moves to November 2, 2026, because October 31 is a Saturday, and the fourth-quarter return to February 1, 2027. |
| TWC quarterly wage report | Last day of the month after each quarter |
| Form 940 (annual FUTA) | January 31; for 2026, February 1, 2027 |
| 2026 Forms W-2 to employees and SSA | February 1, 2027, because January 31 is a Sunday |
Texas rules that are not taxes, but cost money if missed
- New hire reporting: report every new hire and rehire to the Texas Attorney General’s New Hire Reporting program within 20 calendar days of their first day of earning wages. The rule of thumb: anyone who fills out a W-4 gets reported.
- Pay frequency (Texas Payday Law): non-exempt employees must be paid at least twice a month, and exempt employees at least once a month.
- Final pay: within six calendar days of a discharge. An employee who quits is paid by the next regular payday.
- Workers’ compensation: Texas is unusual in not requiring most private employers to carry it. Employers who opt out, known as nonsubscribers, lose certain legal defenses in injury lawsuits, must give each new employee a written notice of their coverage status, and must post it.
Setting up payroll in Dallas: a short checklist
- Get an EIN and enroll in EFTPS before your first payday.
- Register with TWC as soon as you cross the liability threshold.
- Collect a Form W-4 and Form I-9 from every new hire, and report them within 20 days.
- Set pay dates that meet the twice-a-month rule for hourly staff.
- Confirm your deposit schedule each year from the lookback period.
- Decide on workers’ compensation deliberately, and post the right notice.
- Classify workers correctly. Our W-2 vs 1099 guide covers the IRS and TWC tests, which differ.
If you are hiring your first employee, or your payroll has grown past what a spreadsheet can handle, see our payroll administration service, or call (214) 807-2440. If deposits have already fallen behind, read what to do about payroll tax problems first, because that debt can become personal.
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Frequently Asked Questions
Does Texas have state payroll taxes?
Texas has no state income tax, so there is no state withholding. Employers do pay Texas unemployment tax to the Texas Workforce Commission on the first $9,000 of each employee’s wages each year, and it cannot be deducted from employee pay.
What is the Texas unemployment tax rate for a new employer?
New employers are generally assigned the higher of 2.7 percent or the average rate for their industry. On the $9,000 wage base, 2.7 percent is up to $243 per employee per year. After a claims history builds up, TWC assigns an experience rate each year.
What is the Social Security wage base for 2026?
The 2026 Social Security wage base is $184,500, up from $176,100 in 2025. Employer and employee each pay 6.2 percent up to that limit. Medicare is 1.45 percent each with no limit, plus a 0.9 percent Additional Medicare Tax withheld from employees on wages over $200,000.
When are 2026 W-2s due?
Forms W-2 for 2026 must be furnished to employees and filed with the Social Security Administration by February 1, 2027, because January 31, 2027 falls on a Sunday.
How often must Texas employers pay employees?
Under the Texas Payday Law, non-exempt employees must be paid at least twice a month and exempt employees at least once a month. Final pay is due within six calendar days of a discharge, or by the next regular payday if the employee quits.
Is workers’ compensation insurance required in Texas?
Not for most private employers. Texas does not require employers to carry workers’ compensation, but employers who opt out lose certain legal defenses in injury lawsuits and must notify employees in writing and by posting whether they have coverage.
Sources: Internal Revenue Service, Publication 15 (Circular E) for 2026 (Social Security, Medicare, Additional Medicare, FUTA, deposit schedules) and 2026 Instructions for Forms W-2 and W-3; Social Security Administration, 2026 COLA fact sheet; U.S. Department of Labor, FUTA credit reductions; Texas Workforce Commission, unemployment tax rates, new employer information, liability and due dates, Texas Payday Law and workers’ compensation guidance; Texas Attorney General, New Hire Reporting. Retrieved 2026-09-25. TWC’s site limits automated access, so the 2026 TWC rate range and new-employer rate were taken from TWC’s published rate pages via search; confirm your own rate notice.