Payroll Texas, Unique Aspects of Texas Payroll Law and Practice
Texas payroll law and practice is a complex system that may vary from state to state. We've compiled some of the most important points so you can stay compliant, but we recommend consulting with a legal professional for any specific concerns that arise. In general, keep these points in mind:
-Employers are required to withhold federal and state income tax from employees' paychecks
-If you offer more than one type of plan for benefits, ensure the correct percentage is withheld from each employee's paycheck
-You cannot use federal withholding tables; consult your state laws for applicable amounts and rates
All Texas employers should have an ADP National or ADP Local file created to facilitate withholding taxes.
-The Tax Code is updated regularly and the information in this document may be subject to change
-Employers with 10 or more employees must report payroll data electronically, but the vast majority of employers file their payroll tax reports annually on paper.
-If you fail to withhold taxes, you can be held personally responsible for 50% of the unpaid taxes, plus any penalties and interest.
-In general, if your state income tax rate is different than your FICA rate (federal + state), you should withhold an additional amount from employee paychecks to account for any discrepancies.
-You should be filing an Employer Withholding Tax Report (Form TX-40S) if you hire a new employee in Texas, as well as updating your existing forms for any additional employees.
-You must withhold federal and state income tax from your new employee's paycheck on the first payroll period following their date of hire.
-For FICA only, the withholding rate is 6.2% or 0.6% higher if you incorrectly withheld over the last two payroll periods
-FICA only withholding rates were increased to 6.0% for 2017 and will remain at that rate for 2018 and 2019. You may increase FICA withholding to 6.0% by reducing the current federal rate through the IRS website or a payroll software program
-Many states have their own income tax laws, which are not necessarily in sync with federal income tax laws. Understanding your state's rules is important when determining how much you should withhold from an employee's paycheck
-You cannot provide employees with employee benefits, such as loans, unless they meet the eligibility requirements of the program established by Texas law.
-The employer must sign each employee's payroll check; this is required to verify that the proper amount was withheld from each paycheck.
-If you fail to file payroll taxes for a worker, you can be held personally responsible for 50% of any unpaid taxes plus penalties and interest.
-You must file payroll taxes for each employee and each calendar quarter, using Form TX-40S. You must file the form for each employee's first day of employment.
-If your state has not yet adopted a withholding rate for FICA taxes, you will be notified by the IRS
-If you do not complete any of the required Forms (TX-40S), you can be fined or cited under state law if you are audited by your taxing authority.
-Offering Voluntary Contributions, through CalPERS or another fund or program, does not relieve an employer from withholding federal income tax and FICA taxes on employees' paychecks.
-Employers may only withhold federal and Texas state income taxes on their employees' paychecks. In addition, employers must also withhold federal Medicare tax from employees' paychecks, if applicable.
-Payroll tax is calculated using the amount of earned wages shown on employee paychecks. Employees are responsible for providing the employer with verifiable wage information.
-Employers are required to pay FICA taxes each time wages are earned; they are not calculated on a quarterly basis. Employees are responsible for providing the employer with wage information each period for which the paychecks will be issued
-You may be held personally liable for withholding taxes if you fail to provide your employees with written notice of their wages and how those wages are to be paid.
-If a court rule requires you to pay an amount of money, such as a judgment or settlement, you should withhold payroll taxes from employee paychecks in order to cover that liability.
-If an employee is separated from employment due to a fire or similar disaster, the employer must provide unemployment insurance benefits only during that period. The employer may resume withholding taxes after the employee has been off of work for 90 days.
-The Texas Unemployment Insurance Act requires employers to pay unemployment insurance taxes. The Federal Unemployment Tax Act and the Internal Revenue Code impose similar requirements.
-You must withhold federal income tax from your employees' paychecks and remit it to the IRS on Form 1040. You also have to file quarterly Forms 941 with the IRS if you are a "huge" employer (100 or more employees).
-You can provide tax information to your employees by providing a link to the IRS e-file site, which allows you to file your federal and state income taxes online.
-All employers are required to withhold federal and Texas state income taxes from their employees' paychecks. The Department of the Treasury requires employers with 10 or more employees to electronically file Form 941, Employer's Quarterly Federal Tax Return, which is due on February 28 of every year by 5:30 p.m. CST; Form 940, Federal Unemployment Tax Return, is due on the 20th day of the 3rd month following the end of each calendar quarter; Form 1120S, U.S. Income Tax Return for an S Corporation, is due on April 15 by 5:30 p.m.; and Forms 1099-INT, 1098-E and W-2s are due by January 31 of the following year.
-The IRS provides business owners with a number of resources to help them comply with tax requirements.
-The IRS requires you to withhold Social Security and Medicare taxes from employees' paychecks unless you opt out of withholding federal income taxes or if the amount withheld does not cover the full amount that must be paid for Social Security and Medicare taxes.
Conclusion
The Texas Payroll Tax Guide is available on the IRS website, which can be accessed here: https://www.irs.gov/businesses/small-businesses-self-employed/texas-payroll-tax-guide
In general, when a new employee is hired, employers are required to complete two tasks on their behalf:
Additionally, employers may also be required to:
These requirements can be overwhelming for many small businesses and entrepreneurs. Fortunately, there are thousands of resources that can help you understand your obligations under the law and to ensure that you meet them every payroll period.