Texas Payroll Tax Guide 2025 (Employers & Small Businesses)

Table of Contents (Auto-scroll)

Texas Payroll Tax Obligations (Summary)

Texas Unemployment Tax (TWC)

TWC Quarterly Deadlines

Workers’ Compensation (Texas Rules)

Federal Payroll Taxes – Form 941

941 Deadlines 2025

Federal Unemployment – Form 940

W-2 & W-3 Due Dates

1099-NEC Deadlines + New IRS 10-Form Rule

Texas New Hire Reporting

Form 5500 Requirements

FAQ — Texas Payroll Taxes 2025

Texas employers must comply with both state and federal payroll requirements:

Texas State Requirements

• TWC Unemployment Insurance Tax (SUTA)

• Texas New Hire Reporting (within 20 days)

• 1099-NEC contractor reporting

• Optional Workers' Compensation (Texas-specific nuance)

Federal Requirements

• Form 941 – Quarterly payroll tax return

• Form 940 – Annual FUTA return

• W-2 / W-3 – Annual employee reporting

• 1099-NEC / 1096 – Contractor reporting

• Form 5500 – For eligible retirement plans

• EFTPS – Required federal tax deposits

Employers must register with the Texas Workforce Commission (TWC) if they:

• Pay $1,500 or more in wages in any quarter, OR

• Have one or more employees who work at least 20 weeks in a year

Texas SUTA Rates (2025 — Correct)

• New Employer Rate: 2.7% - Maximum cost per employee: $243/year (2.7% × first $9,000)
• Experienced Employer Rates: 0.25% – 6.25%
• Taxable Wage Base:
• SUTA is paid only on the first $9,000 of wages per employee per year.

Texas is one of the only U.S. states where Workers’ Comp insurance is optional for most private employers.

If you do NOT carry workers' comp:

• You become a Texas Non-Subscriber

• You must file required DWC notices

• You lose the employer "exclusive remedy" legal protection

• You may face higher liability risk

Include this in your employee handbook and onboarding.

Employers must file Form 941 to report:

• Federal income tax withholding

• Social Security & Medicare (FICA)

• Employer share of payroll taxes

• Adjustments for sick pay, tips, etc.

Employers must file Form 940 if they:

• Paid $1,500 or more in employee wages during any quarter, OR

• Had one or more employees for at least 20 weeks

Form 940 Deadlines

• Filing Deadline: January 31, 2026

• If all FUTA deposits were made on time → February 10, 2026

You must issue a 1099-NEC if you paid a contractor:

• $600 or more

• For services

• And they are not employees

1099-NEC Deadlines

• Contractor copy → January 31, 2026

• IRS filing → January 31, 2026

Starting in 2024, the IRS requires:

If you file 10 or more total forms (W-2 + 1099 combined), you MUST file electronically.

Paper filing (Form 1096) is only allowed if you file 9 or fewer total information returns.

This rule affects nearly ALL small businesses.

Employers must report all new hires & rehires:

• Due: Within 20 days of hire

• Where: Texas New Hire Reporting Portal

• Required Info:

  • Name

  • Address

  • SSN

  • Start date

Many business owners skip this because they think it's just "bureaucracy," but the state takes it very seriously because its primary purpose is enforcing Child Support payments.

Here is the breakdown of the penalties and risks:

1. Is it a "Must"?

Yes.

• Federal Law: Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996.

• Texas State Law: Texas Family Code Chapter 234.

• Who it applies to: It applies to every new employee you hire, and (crucially for Texas) it also applies to independent contractors if they are 1099 workers.

2. The Financial Penalties

If you fail to report a new hire within 20 days, you face the following fines:

• Standard Penalty: $25 per employee for each failure to report.

  • Note: While $25 sounds small, if you are audited and they find you missed 10 employees over 2 years, they will fine you for all of them.

• Conspiracy Penalty: $500 per employee

  • This applies if the state determines you and the employee "conspired" to not report.

  • Example: An employee asks you, "Please don't report me, I don't want my wages garnished for child support," and you agree. If caught, that is a $500 fine per person.

3. The "Hidden" Risks (Worse than the fine)

The $25 fine is actually the least of your worries. The real risk is liability:

• Unemployment Fraud: If a new hire is secretly still claiming unemployment benefits from a previous job, and you don't report them, the state doesn't know to stop the payments. When the TWC eventually catches them (and they always do), they may audit you to see why you didn't report the hire.

• Child Support Liability: If you fail to report a hire, and that employee owes child support, you can technically be held liable for the child support that should have been withheld during the time you failed to report them.

Required if your business has:

• 401(k) plan

• SIMPLE IRA (depending on provider)

• SEP IRA (if plan assets exceed thresholds)

Form 5500 Deadline

• July 31, 2026

• Can extend using Form 5558

1. Do Texas employers withhold state income tax?

No. Texas has no state income tax. Employers only withhold federal taxes.

2. What is the Texas SUTA rate for 2025?

• New employers: 2.7%

• Experienced employers: 0.25% – 6.25%

• Only paid on the first $9,000 of wages

3. Do I need Workers' Compensation in Texas?

No — it is optional.

If you opt out, you become a Non-Subscriber and must file DWC notices.

4. Do I need to file 941 if payroll is outsourced?

Yes. Payroll providers file on your behalf, but you are legally responsible.

5. When do W-2s need to be filed?

W-2s must be issued to employees and filed with SSA by January 31, 2026.

6. Do I need to file 1099-NEC for contractors?

Yes — if you paid $600+ for services.

NOTE: If you file 10 or more total forms → You must e-file.

7. What is the FUTA (940) filing deadline?

January 31, 2026 (Feb 10 if all deposits were on time).