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. If another founder asked me where Texas employers slip, my answer would be the deadlines and the paperwork, never the math. This guide covers the 2026 rules on both and how 10 payroll providers price the work.

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 1989, 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. The final paycheck deadline changes depending on whether the employee quit or was fired. Workers compensation is optional in a way very few states permit, and it comes with its own annual filing. And the new hire report goes to a different agency than your quarterly wage report.

What Texas actually taxes

At the state level, Texas taxes payroll one way: unemployment insurance, which the employer pays. The useful way to understand Texas payroll is by what is absent, and in the full state-level picture below, 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, the Texas Workforce Commission (TWC), 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: no state tax line, 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 on an expense line, 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 five components, and knowing them explains why your rate can move in a year when your claims history has not changed.

The Replenishment Tax Rate rose to 0.21 percent for 2026 from 0.15 percent in 2025, according to the Texas Workforce Commission's 2026 tax rate guide. 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 the Obligation Assessment comes down to the interest tax rate in the table above. There is no Bond Obligation Assessment Rate, and the Obligation Assessment Ratio and Yield Margin are both zero.

The $9,000 wage base has not changed since 1989, according to the U.S. Department of Labor, and it makes Texas unemployment tax a front-loaded cost. An employee earning $60,000 crosses the base in the eighth week of the year, after which no further unemployment tax accrues for them. That concentrates the employer tax line in the first quarter, which surprises businesses that budget 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 Employer Identification Number (EIN) and issued only by the Texas Workforce Commission. The number runs nine digits, and every quarterly report, rate notice, and payroll platform setup screen asks for it.

You register once you become liable for Texas unemployment tax, 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 tests.

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 authorization form on paper outside narrow exceptions. The business owner, an officer, or a partner signs it through DocuSign, and Form C-43 revokes it.

The Texas Payday Law and the six-day rule

The Texas Payday Law, Chapter 61 of the Texas Labor Code, is where the real compliance risk lives. Its most distinctive provision is the six-day rule: an employee you discharge must be paid in full within six days, while one who quits can wait for the next regular payday, an asymmetry with 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. The Texas Workforce Commission lets the check wait for the next regular workday only when the sixth day falls on a day the business is normally closed.

For an employer who terminates someone on a Monday and runs payroll every other Friday, the six-day deadline will often mean an off-cycle payment, a payroll run outside the regular schedule. 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

Texas sets a minimum pay frequency by employee type, and the dividing line is overtime status under the federal Fair Labor Standards Act (FLSA).

You must post a notice of your designated paydays in conspicuous places in the workplace, and a TWC rule in the Texas Administrative Code, 40 TAC 821.7, accepts electronic posting.

The default payday 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.

Workers compensation is optional in Texas

Most states require 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.

The Texas Division of Workers Compensation (DWC) calls Texas the only state that lets private employers choose. South Dakota is the caveat: its Department of Labor and Regulation says no South Dakota law requires any employer to carry the insurance. Either way, very few states leave the decision to the employer.

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.

Non-subscribers with five or more employees also report each death, each injury that keeps an employee off work for more than one day, and each occupational disease on DWC Form-007 (28 TAC 160.2).

For payroll purposes, the coverage decision comes first, because a non-subscriber has no policy for a payroll platform to connect. The group is large: the Texas Department of Insurance found that 24 percent of Texas employers were non-subscribers in 2024, employing 13 percent of Texas employees.

An employer that does elect coverage can add workers compensation through several of the providers below. Square and Patriot, for example, both list it as an add-on, and Patriot's runs on a pay-as-you-go basis. Treat it as a separate insurance conversation rather than a payroll setting.

Minimum wage, preemption, and new hire reporting

Texas follows the federal minimum wage and, outside public contracts, bars cities and counties from setting a higher one for private employers. New hire reports also go to a different agency than the one that collects your unemployment tax.

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 in private employment, apart from wage terms in public contracts.

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, according to the Attorney General's new hire reporting guidance, and the quarterly wage report to TWC does not satisfy this obligation.

The independent contractor requirement comes from the definition of employee in Family Code Section 234.101. It is broader than in many states and easy to miss, 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

OnPay sells one payroll plan at $49 per month plus $6 per worker paid, with no tiers to climb; HR tools and time tracking are paid add-ons. Multi-state payroll, automatic state tax registrations, and state new hire reporting are part of the base plan rather than an upgrade.

Billing counts the workers paid in a month rather than the pay runs, so the off-cycle payment a six-day discharge deadline forces adds no per-run fee.

Gusto

Gusto is built around first-time payroll buyers, with automatic tax filing, published pricing, and onboarding built into the same account. Simple runs $49 per month plus $6 per person after a base increase during 2025, and it files the quarterly TWC report and the state new hire report. State tax registration is a paid add-on.

The single-state limit on Simple is the constraint to price in. Texas borders four states, and a single remote hire outside Texas moves you to Plus at $80 plus $12 per person.

Patriot Software

Patriot is the lowest-cost full-service payroll on this page once a team reaches five workers. Full Service is $37 per month plus $5 per worker paid, with additional states at $12 per month each.

Patriot's Basic plan costs $17 per month plus $4 per worker 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, with multi-state payroll and new hire reporting included, Square is among the lowest-priced full-service options 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 built in, which matters in a state where the tipped cash wage sits at the federal $2.13 floor.

SurePayroll

SurePayroll is owned by Paychex and built for very small employers and household employers. Its one small business plan is $29 per month plus $7 per worker, with a flat $9.99 monthly fee covering every additional state, and new hire reporting is included.

QuickBooks Workforce Payroll

Workforce Payroll (formerly Payroll Core) is $50 per month plus $7 per employee, and the argument for it is simple: 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 sells RUN on the depth of its tax service: every package calculates, files, deposits, and reconciles payroll taxes and answers inquiries from taxing agencies. 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 publishes no price for any of RUN's four packages, so every quote is individual. The commitment, at least, is light: ADP states that RUN requires no signed contract and that service can be ended at any time.

Paychex Flex

Paychex competes on service rather than software, and every payroll package, from Basic to Complete, is priced on request. 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 a full human capital management (HCM) suite, 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. Its pricing page is a quote form, but Rippling's small-business page starts payroll at $8 per user per month plus a $40 monthly base fee.

Rippling's payroll review prices the core platform at $8 per employee and payroll as a module at another $8 billed annually or $10 billed monthly, so configured quotes run higher. Every product sits on the required core platform, and off-cycle runs are unlimited at no extra cost on its US payroll.

What each provider actually costs a Texas employer

Square and Patriot are the cheapest published options at every headcount. The table below models published rates at three headcounts, plus what a second state adds, the variable most likely to reorder the ranking for a Texas employer with remote staff. For quote-based providers, ask for the full monthly total at your headcount and compare it with these rows.

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, SurePayroll charges a flat $9.99, Patriot and QuickBooks charge $12 a month for each additional state, and OnPay and Square include it.

Houston and Austin payroll services

A payroll service in Houston works from the same rulebook as one in Austin or Lubbock. No Texas city levies its own income or payroll tax, and state law preempts both local wage ordinances in private employment (public contracts aside) and a broader range of local employment rules. That leaves no municipal filing that a local provider knows about and a national platform does not.

What a local payroll 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: get the full monthly total at your headcount, run it against the published rates, and ask 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

Ask every provider these five questions before you sign. The first four come from the Texas rules above, and the last one prices a hire in another state.

Before you choose

FirstHR is an onboarding and HR platform, not a payroll provider. Payroll runs, payroll tax filing, and benefits administration come from the providers above, 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 that put the W-4 and I-9 on the first-day task list for each new hire and keep the completed forms in their employee file, e-signature on offer letters and policy acknowledgments, employee records, and document management for US small businesses at a flat $98 a month for up to 10 people or $198 for 11 to 50.

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?

The only state payroll tax is unemployment insurance, paid by the employer on the first $9,000 of each employee's wages. Texas has no state individual income tax, so there is no state withholding and no state W-4. 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 the higher of 2.7 percent or their industry average under the North American Industry Classification System (NAICS), which comes to 2.7 percent for every industry group in 2026.

The rate is assembled from five components: 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 1989. 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, unless the sixth day falls on a day the business is normally closed.

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 lets most private employers opt out, which very few states allow. Non-subscribers must post and give written notice of no coverage. They 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 exposes the employer to injury suits in which it cannot argue contributory negligence, assumed risk, or a coworker's negligence.

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 for private employers outside public contracts.

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 civil penalty can reach $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.