Texas Payroll: Employer Tax and Software Guide

Texas has no state income tax, which is the fact everyone knows, and it makes the calculation side of Texas payroll genuinely easy. It also means the things that go wrong in Texas are never calculation problems.

There is no state withholding to compute, no state W-4 to collect, no withholding tables to keep current. One state tax exists, unemployment insurance, and it runs on a wage base of $9,000 that has not moved since 1997, which most full-time employees clear inside the first quarter. On the arithmetic, Texas is close to the simplest state in the country.

What Texas has instead is a set of timing and documentation rules with real consequences: a final paycheck deadline that changes depending on whether the employee quit or was fired, a workers compensation system that is optional in a way no other state permits and comes with its own annual filing, and a new hire report that goes to a different agency than your quarterly wage report. This guide covers what Texas requires in 2026 and how 10 payroll providers price the work.

What Texas actually taxes

The useful way to understand Texas payroll is by what is absent. Below is the full state-level picture, and the empty rows are the point.

Three of the five rows are empty. There is no state withholding certificate to collect at hire, no municipal returns to file, no disability or paid leave contribution running on a separate wage base. A Texas employer registers with one state agency for tax purposes and files with it quarterly.

What comes out of a Texas paycheck

A Texas paycheck carries federal deductions and nothing else: income tax withholding based on the W-4 the employee filed, 6.2 percent for Social Security, and 1.45 percent for Medicare. Nothing goes to the state, and the one state tax an employer does pay is never deducted from the employee.

Anyone calculating a Texas paycheck by hand works in that order. Start from gross pay, apply federal withholding using the current W-4 and IRS Publication 15-T, take 6.2 percent for Social Security up to the 2026 wage base of $184,500 (Social Security Administration), then 1.45 percent for Medicare on the full amount.

Two thresholds move the arithmetic mid-year. Social Security withholding stops once an employee clears that wage base, and an extra 0.9 percent of Medicare begins once wages pass $200,000 in the calendar year, taken from the employee with no employer match (IRS Topic 751). Payroll software applies both. A spreadsheet built in January usually does not.

The Texas side of the same paycheck is blank. There is no state withholding to compute and no state certificate to collect alongside the federal W-4. Unemployment tax is the employer's own cost on the first $9,000 of wages, so it belongs in an expense line and never as a deduction on a pay stub.

The one state tax and its five components

Texas unemployment tax looks like a single percentage on your rate notice, but it is assembled from several distinct pieces, and understanding them explains why your rate moves in years when your claims history has not changed.

The Replenishment Tax Rate rose to 0.21 percent for 2026 from 0.15 percent in 2025. The Employment and Training Investment Assessment is fixed at 0.10 percent and the Replenishment Tax Rate is reduced by the same amount to offset it, so the training assessment does not increase what you pay. For 2026 there is no Bond Obligation Assessment Rate, and the Obligation Assessment Ratio and Yield Margin are both zero.

Because the wage base is $9,000 and has been since 1997, unemployment tax in Texas is effectively a front-loaded cost. An employee earning $60,000 crosses the base in about the seventh week of the year, after which no further unemployment tax accrues for them. That produces a first-quarter concentration in the employer tax line that catches out businesses budgeting evenly across the year.

Getting a TWC tax account number

Texas unemployment tax is filed under a TWC tax account number, which is separate from the federal EIN and issued only by the Texas Workforce Commission. The number runs nine digits, usually printed with dashes as XX-XXXXXX-X, and every quarterly report, rate notice, and payroll platform setup screen asks for it.

You register once you become liable, not when you incorporate, and registration is due within 10 days of that point. The tests below are the ones that catch ordinary commercial employers; nonprofits, employers who acquire an existing business, and employers already liable under federal unemployment law have their own.

Registration runs through the Unemployment Tax Registration service, and an employer that qualifies gets the account number back in the same session rather than waiting for a letter. Have the EIN, the date wages first passed a threshold, and the business entity details in hand before starting.

Handing the number to a payroll provider is not the last step. Authorizing a provider to file and pay on your behalf takes Form C-42: log on to Unemployment Tax Services, then open Third Party Authorization from the Account Info tab. TWC does not accept the form on paper outside narrow exceptions, an authorized representative files under its own signature, and Form C-43 revokes it.

The Texas Payday Law and the six-day rule

Chapter 61 of the Texas Labor Code is where the real compliance risk lives, and its most distinctive provision is an asymmetry in final pay that has no obvious parallel in the states around it.

The six-day clock runs on calendar days, weekends included, and it starts on the date of discharge rather than the end of the pay period. For an employer who terminates someone on a Monday and runs payroll every other Friday, that will often mean issuing an off-cycle payment. A platform that makes off-cycle runs awkward or expensive is a genuine operational problem in Texas rather than a theoretical one.

Pay frequency and designated paydays

Employers must post a notice of their designated paydays in the workplace, and each location needs its own posting. The default rule is the part most summaries omit: if you never designate paydays at all, the law supplies the first and fifteenth for you, which may not be the schedule you thought you were running.

The only state where workers compensation is optional

Every other state requires private employers to carry workers compensation once they pass some threshold. Texas does not, and this is the single most distinctive feature of employing people in the state.

Employers that decline coverage are called non-subscribers. They must notify employees in writing, post a notice of no coverage in the workplace, and file DWC Form-005 with the Division of Workers Compensation on the schedule above. Employers with five or more employees report work-related injuries and illnesses on DWC Form-007.

For payroll purposes the practical consequence is that no provider can bundle Texas workers compensation the way pay-as-you-go programs work elsewhere, because a large share of Texas employers have no policy to bundle. Where a provider does offer it, treat it as a separate insurance conversation.

Minimum wage, preemption, and new hire reporting

Minimum wage and local preemption

Texas adopts the federal minimum through Section 62.051 of the Labor Code rather than setting an independent figure, so the state rate moves only when the federal one does. Section 62.0515 preempts local wage ordinances, and House Bill 2127 in 2023 extended state preemption across a broader range of local employment regulation. The result is unusual uniformity: the same wage floor and the same rules apply in Houston, Dallas, Austin, and every small town, which removes the city-by-city tracking that complicates payroll in states like California or Colorado.

New hire reporting goes to a different agency

Texas new hire reports go to the Child Support Division of the Office of the Attorney General, not to the Texas Workforce Commission. Employers file within 20 calendar days of the date the employee starts earning wages, and the quarterly wage report to TWC does not satisfy this obligation.

The independent contractor requirement is broader than in many states and is the piece most often missed, because contractors sit outside the payroll system that would otherwise trigger the report.

10 payroll providers for Texas employers compared

Every provider below handles Texas unemployment tax and quarterly TWC reporting. With no state withholding to get wrong, the differentiators are ordinary: price, whether off-cycle runs are easy and free given the six-day discharge rule, whether the new hire report to the Attorney General is filed for you, and what a second state costs.

OnPay

One plan at $49 per month plus $6 per employee, everything included, no tiers to climb. Multi-state is part of the base plan rather than an upgrade, and unlimited pay runs mean the off-cycle payment a six-day discharge deadline forces does not carry a surcharge. OnPay maintains a Texas-specific tax rates resource.

Gusto

The most common first payroll purchase for US small businesses, with automatic tax filing, published pricing, and the strongest onboarding experience among payroll-first platforms. Simple runs $49 per month plus $6 per employee after a base increase in early 2026, and it handles TWC registration as a third-party administrator along with quarterly filing and the new hire report.

The single-state limit on Simple is the constraint to price in. Texas borders four states and a great many Texas employers pick up remote staff elsewhere, and one such hire moves you to Plus at $80 plus $12 per employee.

Patriot Software

The cheapest legitimate full-service payroll on the market. Full Service is $37 per month plus $5 per employee, with additional states at $12 per month each. Basic is $17 plus $4 if you file taxes yourself, and Texas is one of the few states where self-filing is genuinely manageable, since there is no state withholding and the only recurring state filing is the quarterly TWC report.

Square Payroll

At $35 per month plus $6 per person, Square is the cheapest full-service option with published pricing. For a Houston or Austin restaurant already running Square point of sale, timecards flow into payroll with no integration work and tip handling is native, which matters in a state where the tipped cash wage sits at the federal $2.13 floor.

SurePayroll

Owned by Paychex and built for very small employers and household employers. Full Service is $29 per month plus $7 per employee, with a flat $9.99 monthly multi-state fee that is the most economical multi-state arrangement here for a very small team.

QuickBooks Workforce Payroll

Core is $50 per month plus $6.50 per employee, and the argument for it is unchanged: if your books live in QuickBooks Online, payroll reaches the general ledger without an export. In a state with no withholding layer to worry about, the accounting integration carries proportionally more of the decision than it would elsewhere.

ADP RUN

ADP has the deepest tax compliance engine in the category. Texas is not the state where that depth earns its premium, since there is no withholding to calculate and one quarterly state filing to make. The case for ADP here is a Texas employer with genuine multi-state complexity, or one expecting to grow past the point where a small platform stays comfortable.

The cost is opacity. ADP does not publish RUN pricing; third-party estimates put Essential near $79 per month plus $4 per employee, but every quote is individual. Contracts typically run a year with automatic renewal and a 30 to 60 day cancellation window.

Paychex Flex

Paychex competes on service rather than software, and unusually among quote-driven vendors it publishes an entry rate: Essentials at $39 per month plus $5 per employee, with higher tiers quoted individually. It maintains offices across Texas, and the service model earns its keep less on tax complexity than on Payday Law questions, where a disputed deduction or a six-day final pay deadline benefits from someone to call.

Paylocity

Paylocity sits between small-business payroll and full HCM, aimed at companies that have outgrown basic payroll. Its onboarding module handles document collection and e-signature as part of a configured workflow, which addresses the part of Texas compliance that is documentary rather than computational. Pricing is quote-based and implementation is a project rather than a signup.

Rippling

Rippling unifies payroll, HR, and IT provisioning on one employee record. The core platform is $35 per month plus $8 per employee, with payroll as a separate module. Real-world all-in costs land between $25 and $45 per employee per month once you assemble a working configuration.

What each provider actually costs a Texas employer

The table below models published rates at three headcounts, with a column for what a second state adds, since that is the variable most likely to reorder the ranking for a Texas employer with remote staff.

Square and Patriot are the cheapest published options at every headcount. Because Texas has no withholding layer and one recurring state filing, the comparison here is closer to a pure price question than in states with municipal returns or dual wage bases, and the cheapest capable platform is a more defensible choice than usual. The variable that changes the answer is the second state: Gusto Simple forces a tier upgrade that roughly doubles the bill, while SurePayroll charges a flat $9.99 and OnPay and QuickBooks include it.

Houston and Austin payroll services

A payroll service in Houston works from the same rulebook as one in Austin or Lubbock. Texas preempts local wage and employment ordinances, and no Texas city levies its own income or payroll tax, so there is no municipal filing a local provider knows about that a national platform does not.

What a metro bureau or CPA firm actually sells is proximity and a named person. That is worth paying for if you want payroll sitting beside your bookkeeping, sales tax, and franchise tax return, or someone local to call when a Payday Law claim lands. It is not worth paying for local compliance knowledge, because there is no local layer to know.

Price one the same way you price the platforms above. Local providers usually quote a monthly base plus a per-check fee, so run the total at your headcount against the published rates, and ask the same three questions: are off-cycle runs free, who files the new hire report with the Attorney General, and what does a second state cost.

Choosing a payroll provider for Texas

Before you choose

FirstHR does not process payroll, file payroll taxes, or administer benefits. Every provider above does something we do not, and because Texas payroll computation is about as simple as it gets in the United States, the sensible move is to pick a capable platform at the lowest defensible price and spend your attention elsewhere.

What we handle is the document layer around payroll: onboarding workflows, e-signature on the federal W-4 and I-9, offer letters, employee records, and document management for 5 to 50 employee US teams at a flat $98 to $198 per month. Texas is a state where that split is unusually clean, because the state asks almost nothing of your calculation engine and quite a lot of your records: a new hire report to a separate agency within 20 days, contractors included in that report, the workers compensation coverage notice if you are a non-subscriber, and signed deduction authorizations that hold up 180 days later.

Frequently Asked Questions

Does Texas have a payroll tax?

Texas has no state individual income tax, so there is no state withholding and no state W-4. The only state payroll tax is unemployment insurance, paid by the employer on the first $9,000 of each employee's wages. Everything else on a Texas paycheck is federal.

What is the Texas unemployment tax rate?

For 2026 experience-rated employers pay between 0.32 and 6.32 percent on the first $9,000 of wages. New employers pay their NAICS industry average or 2.7 percent, whichever is higher. The rate is assembled from a General Tax Rate, a Replenishment Tax Rate of 0.21 percent, an Obligation Assessment, a Deficit Tax Rate, and the Employment and Training Investment Assessment.

What is the Texas taxable wage base?

$9,000 per employee per calendar year, set by statute and unchanged since 1997. It is one of the lowest in the country, so most full-time employees cross it within the first quarter, concentrating unemployment tax in the early part of the year. At the minimum rate the annual cost is about $29 per employee; at the maximum it is about $569.

When is a final paycheck due in Texas?

Within six calendar days of discharge for an involuntary separation, and by the next regularly scheduled payday for a voluntary resignation, under Texas Labor Code Section 61.014. The six-day count includes weekends and runs from the discharge date.

How often must Texas employers pay employees?

Employees exempt from FLSA overtime provisions must be paid at least monthly; all others at least twice a month, with semi-monthly periods as nearly equal in length as possible. Employers designate paydays in advance and post a notice at each workplace. If no paydays are designated, the statutory default is the first and fifteenth of the month.

Is workers compensation required in Texas?

No. Texas is the only state where private employers may generally opt out. Non-subscribers must post and give written notice of no coverage and file DWC Form-005 annually between February 1 and April 30, within 30 days of a first hire, within 10 days of ending a policy, and within 10 days of a Division request. Opting out means losing the common law defenses the compensation system provides.

What is the minimum wage in Texas?

$7.25 per hour with a tipped cash wage of $2.13 and a maximum tip credit of $5.12. Texas adopts the federal floor under Labor Code Section 62.051 and preempts local wage ordinances under Section 62.0515, so no Texas city or county may set a higher rate.

How long do Texas employers have to report a new hire?

Twenty calendar days from the date the employee starts earning wages, filed with the Child Support Division of the Office of the Attorney General. Independent contractors must be reported as well, and the penalty is $25 per employee for a knowing failure to report.

How long does an employee have to file a wage claim in Texas?

180 days from the date the wages were originally due, filed with the Texas Workforce Commission under the Texas Payday Law. Because the window runs from when wages were due rather than from separation, claims over disputed deductions or unpaid commissions can arrive months after an employee leaves.