How to Calculate Texas Payroll Taxes

by Grace Ferguson; Updated September 26, 2017
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Texas is one of the few states that does not charge employees a state income tax (though Texas employees must still pay federal income taxes, Social Security taxes, and Medicare tax withholdings). Texas employers are also subject to state unemployment (SUTA) tax, federal unemployment (FUTA) tax, and their share of Medicare and Social Security taxes. The employer calculates federal payroll taxes according to the Internal Revenue Service’s guidelines, and state payroll taxes according to the Texas Workforce Commission’s instructions.

Step 1

Calculate state unemployment tax. The Texas Workforce Commission advises the employer of its SUTA tax rate for the year. For 2010, the minimum rate was .72 percent and the maximum was 8.60 percent. New employers generally have a rate of 2.70 percent or the average industry tax rate--whichever is greater. The SUTA wage base for 2010 was $9,000.

To arrive at your state unemployment tax liability for each employee, multiply the wage base by your SUTA tax rate. Once you have met the annual wage base for each employee, your state unemployment tax liability ends for the year.

Step 2

Calculate federal unemployment tax at 6.2 percent of the first $7,000 paid to every worker. You can take a credit of 5.4 percent against your FUTA tax if you paid your state unemployment tax on time. This lowers your federal unemployment tax rate to .8 percent.

Step 3

Figure Medicare tax at 1.45 percent of all gross income; and Social Security tax at 6.2 percent of gross income, up to $106,800 annually. The employer and the employee pay the same amount of Medicare and Social Security taxes.

Step 4

Calculate federal income tax withholding. Check the employee’s W-4 form for his filing status and allowances--see Lines 3 and 5, respectively. Use the IRS withholding tax tables (Circular E) to figure federal income tax. The Circular E gives you the withholding amount based on the worker’s gross wages, pay period, filing status and allowances.

Tips

  • Pay Social Security, Medicare, federal income tax and federal unemployment tax liabilities to the IRS, according to the schedule it mandates.

    Pay state unemployment tax to the Texas Workforce Commission according to its schedule. For example, for wages paid during October, November and December, make payments by January 31.

About the Author

Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.

Photo Credits

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