Everything a Texas company needs to know about paying unemployment insurance taxes.
If your small company employs people in Texas, you must pay the Texas unemployment insurance (UI) levy. The UI tax pays for unemployment insurance programs for qualifying workers. In Texas, one of the key taxes that companies must pay is the state unemployment insurance levy. Texas, unlike the majority of other states, does not have state withholding taxes. Other essential employer taxes that are not mentioned here include federal unemployment insurance and withholding taxes.
Varied states have different UI tax policies and rates. Here are the fundamentals of Texas’ UI tax.
It should be noted that in Texas, the term “unemployment tax” rather than “unemployment insurance tax” is often used.
Unemployment Insurance Tax Liability Regulations
In Texas, most for-profit firms are subject to state unemployment insurance fees as soon as they:
paid $1,500 or more in total gross pay in a calendar quarter, or at least one employee during 20 distinct weeks in a given calendar year regardless of earnings (the employee does not have to be the same person for 20 weeks and may be full time or part time).
These are the same standards that govern liability under the Federal Unemployment Tax Act (FUTA). Different restrictions apply to agricultural (farm) employees, domestic (in-home) workers, and certain (but not all) non-profit organizations, which are not included here.
One piece of good news is that state UI tax payments are often deductible from FUTA taxes.
Become a member of the Texas Workforce Commission.
Your small company must register with the Texas Workforce Commission (TWC) as a Texas employer liable to UI tax in order to get a TWC tax account number. Within 10 days of being responsible for UI tax, you must register with the TWC. TWC recommends online registration, however you may also register by mail. To register online, go to the TWC website’s Unemployment Tax Registration area. The whole procedure should take roughly twenty minutes. Form C-1, Status Report, is used to register by mail. (Employers on farms and ranches use a separate form.) A blank Form C-1 may be downloaded from the TWC website’s Tax Forms & Instructions area. You will be given a tax account number after you have enrolled. There is no cost to register your company with TWC.
Wage Structure and Tax Rates
The state UI tax is levied on each employee’s salary up to a certain yearly limit. This is referred to as the taxable wage base or taxable pay limit. In Texas, the cap has been set at $9,000 for many years. However, that figure is subject to change.
There is also a technique for calculating the state UI tax rate for new employers. The method and accompanying rates, like the taxable wage cap, are subject to change. However, the present rate is the greater of:
2.7% is the average tax rate allocated to each industry by the North American Industry Classification System (NAICS).
The NAICS was developed by the federal government to categorize and analyze information for various types of enterprises. Texas, on the other hand, assigns a UI tax rate to new employers based on the average tax rate for each of these types of firms (industries). Based on a “experience rating,” established employers are liable to a lower or higher rate than new firms. This includes, among other things, the amount of wages your company has paid and if any workers have ever filed for state unemployment benefits. In recent years, rates for established firms have varied from less than 1% to more than 7%, with an average of less than 2%.
Submit Tax Reports and Payments on Time
UI tax reports and payments are due in Texas one month after the end of each calendar quarter. To put it another way, UI tax returns
If a report or tax payment is due on a Saturday, Sunday, or a legal holiday when TWC offices are closed, reports and payments are deemed timely if received on or before the next working day.
Unless the TWC has granted you a hardship waiver, you must complete your reports and make payments online. A hardship exception is provided to employers who:
do not have a computer, or do not have access to the Internet.
Contact your local tax office for further information about waivers, completing your report, or paying your taxes online.
The TWC provides two online filing options:
QuickFile and Unemployment Tax Services.
Unemployment Tax Services is a mechanism for reporting and paying unemployment taxes online. QuickFile is a wage reporting tool that you may install on your own computer and utilize. Intuit, a private corporation, also offers software that enables you to submit salary reports based on information in a payroll record.
Larger employers must pay by Electronic Funds Transfer (EFT). Other employers may typically pay in one of three ways:
Debit from a bank account by Automated Clearing House (ACH), Electronic Funds Transfer (EFT), or credit card.
Payments may be made electronically using Unemployment Tax Services via the TEXNET Electronic File Transfer system. Employers who have been granted a hardship waiver by the TWC may pay by check, money order, or cash.
Make a Public Notice (Poster)
You must display a notice (poster) about state UI claims (as well as Texas payday regulations) in a visible location for all workers. The sign contains basic information regarding who workers should contact at the TWC if they become jobless, as well as the Texas Payday Law. You may download a notice that satisfies all legal standards from the TWC website’s Posters section.
Employees should not be misclassified as independent contractors.
Employers that hire independent contractors rather than employees are exempt from the UI tax. It is critical, however, that you should not misclassify an employee as an independent contractor. If you misclassify an employee, you may face penalties or fines.
Using Payroll Service Providers
You may decide that it is easier to delegate payroll obligations, including UI taxes, to an outside payroll agency. If this is the case, bear in mind that your company, or even you personally, may be held directly liable for errors made by an outside payroll firm.
Further Information
This page simply covers the most fundamental aspects of Texas UI taxes. Check the IRS and TWC websites for the most up-to-date information to avoid potential fines for inaccuracies. In addition to the state unemployment tax, companies must also pay federal unemployment and withholding taxes, as well as record new hiring.