Payroll taxes can seem confusing when you run a small business. There are forms, rates, deadlines, and employee records to track. The good news is that the basic process is easier to understand once you break it down.

Many Texas business owners use Bookkeeping & Payroll Services in Abilene, TX to keep payroll records on track. Still, every employer should know what payroll taxes are and how they work. This helps prevent costly mistakes and missed deadlines.

What Are Payroll Taxes?

Payroll taxes are taxes linked to employee pay. Some taxes come out of an employee's paycheck. Others are paid by the employer.

Federal payroll taxes include federal income tax withholding, Social Security, and Medicare. Employers may also owe federal unemployment tax. Texas employers can also have state unemployment tax duties.

accounting services in Abilene can help businesses review payroll records and other financial needs. However, it is still useful to understand the main tax rules yourself.

Why Payroll Taxes Matter

Payroll taxes are not optional. Employers must collect certain taxes and send them to the right agency.

The IRS treats some withheld payroll taxes as trust fund taxes. These funds belong to employees until they are sent to the government.

That means payroll needs care. A small mistake can create a larger problem later.

Does Texas Have a State Income Tax?

Texas does not impose a personal state income tax. This means Texas employers generally do not withhold a Texas personal income tax from employee pay.

That makes Texas different from many other states.

However, this does not mean Texas employers have no payroll tax duties. Federal taxes still apply. Texas employers may also need to pay state unemployment taxes.

Federal Taxes Still Apply

Texas employees still have federal income tax withheld from their pay.

The amount depends on the employee's Form W-4 and IRS withholding rules. Employers use the proper IRS tables and methods to calculate withholding.

So, no Texas income tax does not mean no income tax.

Understanding Social Security Tax

Social Security tax is part of FICA. Both the employee and employer generally pay a share.

For 2026, the Social Security rate is 6.2% for the employee and 6.2% for the employer. The total rate is 12.4%.

There is also a yearly wage limit.

The 2026 Social Security Wage Base

For 2026, Social Security tax applies to the first $184,500 of covered wages. Once an employee reaches that amount, Social Security withholding stops for that year.

Medicare works differently.

Understanding Medicare Tax

Medicare tax also applies to employee wages.

For 2026, the Medicare rate is 1.45% for the employee and 1.45% for the employer. The total is 2.9%.

There is no wage limit for regular Medicare tax.

This means covered wages remain subject to Medicare tax throughout the year.

Additional Medicare Tax

Some higher-paid employees may also be subject to Additional Medicare Tax.

Employers must withhold an extra 0.9% from wages paid to an employee above $200,000 during the year. The employer does not match this extra 0.9%.

The employer starts this withholding in the pay period when wages go above $200,000.

Federal Income Tax Withholding

Federal income tax is different from Social Security and Medicare.

The employer does not simply use one fixed rate for every worker. The amount depends on the employee's Form W-4 and the IRS withholding method.

What Employers Need From Employees

When a new employee starts, the employer should collect the required employment forms.

The employee uses Form W-4 to provide withholding information. The employer uses that information to calculate federal income tax withholding.

Keep these records safe.

Review Employee Information

Employees may change their W-4 information later. Payroll records should reflect valid changes.

Do not guess when a form looks unclear. Follow current IRS guidance or ask a qualified payroll professional.

What Is Texas Unemployment Tax?

Texas has a state unemployment insurance tax for liable employers.

The Texas Workforce Commission, or TWC, manages this program. The tax helps fund unemployment benefits for eligible workers.

Unlike Social Security and Medicare, Texas unemployment tax is not deducted from employee wages. It is an employer tax.

The Texas Taxable Wage Base

For 2026, Texas employers generally pay unemployment tax on the first $9,000 paid to each employee during the calendar year.

The rate depends on the employer.

For 2026, TWC lists rates ranging from 0.32% to 6.32%. New employers may receive an entry-level rate based on the applicable rules.

Your exact rate should come from TWC.

How Texas Unemployment Tax Is Calculated

The basic idea is simple.

Take the employee's taxable wages. Then multiply them by the employer's effective tax rate.

For example, imagine an employer has $9,000 in taxable wages for one employee. If the rate is 1%, the tax would be $90.

The actual rate can differ by employer.

Federal Unemployment Tax

Employers may also owe federal unemployment tax under FUTA.

FUTA is an employer tax. It is not taken from the employee's paycheck. Employers report FUTA using Form 940.

FUTA rules have their own wage limits and credit rules.

Do not confuse FUTA with Texas unemployment tax. They are separate systems.

FUTA and Texas UI Are Different

Both taxes support unemployment programs. Yet they have different rules.

Texas unemployment tax goes through TWC. FUTA is handled through the federal system.

Good payroll software can help track both.

How Payroll Taxes Move From Paycheck to Government

The process happens each time you run payroll.

First, calculate the employee's gross pay.

Then determine the required deductions. These may include federal income tax, Social Security, and Medicare.

Next, calculate the employer's payroll tax costs.

After that, record the payroll.

Finally, deposit and report the taxes based on the required schedule.

A Simple Example

Imagine an employee earns $2,000 in gross pay.

The employer must calculate federal income tax withholding based on the employee's W-4 and IRS rules.

The employee's Social Security share would generally be $124. The employer would also owe $124 for its Social Security share.

The employee's Medicare share would generally be $29. The employer would owe another $29.

These figures cover Social Security and regular Medicare only. They do not include federal income tax or other payroll items.

Payroll Tax Deposits

Employers must send withheld federal taxes and employer tax amounts to the IRS.

The deposit schedule depends on the employer's tax liability and IRS rules.

Do not assume every business uses the same schedule.

Monthly and Semiweekly Rules

The IRS assigns deposit schedules based on payroll tax liability. Some employers deposit monthly. Others must deposit more often.

Your business should follow the schedule assigned under current IRS rules.

Missing a deposit can lead to penalties.

Keep a Tax Calendar

A simple tax calendar can prevent missed dates.

Add federal deposit dates. Add quarterly filing dates. Add TWC reporting dates.

Set reminders before each deadline.

Form 941 for Most Employers

Many employers use Form 941 to report federal payroll taxes.

Form 941 is filed each quarter. It reports wages, federal income tax withheld, and Social Security and Medicare taxes.

The four reporting periods cover:

• January through March

• April through June

• July through September

• October through December

The filing deadline is generally the last day of the month after the quarter ends.

Form 940 for FUTA

Form 940 is used to report federal unemployment tax.

It is an annual federal return. Deposit rules may require payments during the year.

Keep your FUTA records separate from other payroll records.

Texas Quarterly Unemployment Reports

Texas employers subject to unemployment tax must report employee wages to TWC.

TWC requires quarterly wage reports. Reports are generally due in the month after each calendar quarter.

TWC requires electronic filing for these reports.

Report Wages When Paid

For Texas unemployment tax, employers report wages when they are paid. They do not report them simply when wages are earned.

This difference matters.

Keep accurate payroll dates in your records.

Year-End Payroll Duties

Payroll work does not end after the final paycheck.

Employers also have year-end reporting duties.

One major document is Form W-2.

Form W-2

Employers use Form W-2 to report employee wages and certain taxes.

The employee needs this form for their federal tax return.

For 2026, W-2 forms generally must be furnished to employees and filed with the Social Security Administration by January 31.

Make sure names, addresses, wages, and tax amounts are correct.

Common Payroll Tax Mistakes

Payroll mistakes often come from poor records.

The good news is that many errors are easy to avoid.

Using the Wrong Tax Rate

Do not use an old tax rate.

Federal and state rates can change. Always check current guidance.

Missing Deposit Dates

Late deposits can create penalties.

Use reminders and a tax calendar.

Mixing Payroll and Other Expenses

Payroll should have clear records.

Do not lump payroll costs into random expense categories.

Ignoring Employee Changes

Pay rates, benefits, W-4 information, and work status can change.

Update records when valid changes occur.

Misclassifying Workers

Employee and contractor rules are not the same.

Do not label someone an independent contractor simply because it seems easier.

Worker classification can affect tax duties and reporting.

How Texas Employers Can Stay Organized

A simple payroll system can make the work much easier.

Start with accurate employee records.

Then use reliable payroll software or professional support.

Keep These Records

Keep records for:

• Employee names

• Addresses

• Social Security numbers

• W-4 forms

• Pay rates

• Hours worked

• Gross wages

• Tax withholdings

• Employer tax amounts

• Payroll reports

• Tax deposits

• W-2 forms

• TWC reports

Protect sensitive employee information.

Review Payroll Before Finalizing

Do not rush payroll.

Check hours first. Then check pay rates. Review deductions. Look for unusual changes.

A short review can catch an error before money moves.

When Should a Texas Employer Get Payroll Help?

Payroll can become difficult as a business grows.

You may have more employees. You may offer benefits. You may have workers in different states.

At that point, payroll support can save time.

Signs You Need Help

Consider professional support if:

• Payroll takes hours every week

• Tax deadlines are hard to track

• Employees report pay errors

• Records do not match

• You are unsure about tax forms

• TWC reports feel confusing

• You have multi-state employees

• Payroll keeps getting delayed

Professional help can also give you more time to focus on customers and daily business work.

Final Thoughts

Payroll taxes are easier to manage when you understand the basic process.

Texas employers generally do not withhold a state personal income tax. But federal payroll taxes still apply. Texas unemployment tax may also apply to liable employers.

For 2026, Social Security is 6.2% for both the employee and employer. Medicare is 1.45% for both sides. Social Security has a $184,500 wage base for 2026.

Texas unemployment tax generally applies to the first $9,000 paid to each employee. The employer's rate depends on its TWC tax rate.

The safest approach is simple.

Keep clean records. Use current tax rules. Track every deadline. Review payroll before sending it.

When a question is unclear, check official IRS and TWC guidance. You can also speak with a qualified tax or payroll professional.

Payroll does not have to become a daily headache. A good system can keep it clear, steady, and manageable.

FAQs

1. Do Texas employers withhold state income tax from paychecks?

No. Texas does not impose a personal state income tax. Employers still need to handle applicable federal payroll taxes.

2. Who pays Social Security and Medicare taxes?

Both the employee and employer generally pay their share. For 2026, Social Security is 6.2% each. Medicare is 1.45% each.

3. Does every Texas employer pay unemployment tax?

Not every employer has the same liability. Employers subject to Texas unemployment law generally register with TWC and pay the required tax.

4. How often do Texas employers report unemployment wages?

Liable employers generally submit wage reports every quarter. TWC requires these reports electronically.

5. What payroll records should Texas employers keep?

Keep employee forms, wage records, tax records, payroll reports, deposits, and year-end forms. Keep sensitive information secure and follow current recordkeeping rules.