What payroll taxes do small businesses need to pay?

Payroll Taxes for Small Businesses in Texas

Small businesses operating in Texas must manage several payroll tax obligations to stay compliant and avoid penalties. Understanding these taxes helps streamline payroll processes and supports accurate bookkeeping and reporting.

Federal Payroll Taxes

• Social Security Tax: Employers must withhold 6.2% of each employee’s wages up to the annual wage limit and match this amount.
• Medicare Tax: Withhold 1.45% of wages from employees and match this amount. Additional Medicare tax of 0.9% applies to employee wages exceeding a threshold, but employers do not match this portion.
• Federal Unemployment Tax Act (FUTA): Employers pay FUTA tax on the first $7,000 of each employee’s wages. This tax funds unemployment benefits and requires separate reporting.
• Federal Income Tax Withholding: Employers must withhold federal income tax from employee wages based on IRS withholding tables and employee Form W-4 information.

Texas State Payroll Tax Considerations

• No State Income Tax Withholding: Texas does not impose a state income tax, so employers do not withhold state income tax from employee wages.
• Texas Unemployment Tax (SUTA): Employers pay state unemployment tax based on their experience rating and taxable wage base. This tax funds the Texas Workforce Commission’s unemployment benefits program.

Operational Recommendations

• Register with the IRS and Texas Workforce Commission: Obtain necessary employer identification numbers to report and remit payroll taxes.
• Maintain Accurate Payroll Records: Track wages, tax withholdings, and employer contributions to support compliance and simplify tax filing.
• Use Payroll Automation Tools: Automate tax calculations, withholdings, and filings to reduce errors and save time.
• File Timely Reports and Payments: Submit federal and state payroll tax returns and payments by their deadlines to avoid penalties.
• Stay Updated: As of 2026, regularly review IRS and Texas Workforce Commission updates on payroll tax rates and regulations.