Texas payroll setup for your first hire

TWC is the unemployment-tax agency. Texas does not withhold state income tax from paychecks.

Texas Constitution Article VIII § 24-a says the legislature may not impose a tax on the net incomes of individuals. That includes an individual’s share of partnership and unincorporated association income. Texas does not collect state income tax on wages. There is no state employee withholding certificate. There is no state paycheck-withholding account to open. Franchise tax under Tax Code § 171.001 is a Comptroller filing for taxable entities. It is not a first-hire trigger. A Comptroller taxpayer number is not the TWC unemployment-tax number. A Comptroller login is not a withholding registration.

When you owe Texas unemployment tax: $1,500 in a quarter, or one person in 20 weeks

Labor Code § 201.021 is enough by itself. You are an employer if you paid wages of $1,500 or more during a calendar quarter in the current or preceding calendar year. You are also an employer if you employed at least one individual in employment for a portion of at least one day during 20 or more different calendar weeks of the current or preceding calendar year. One of those two tests is enough.

Other employer definitions sit in the same chapter and next door. A successor who takes all or part of an employer’s organization, trade, business, or workforce is covered (§ 201.022). A 501(c)(3) that employed at least four individuals in employment for a portion of at least one day during 20 or more different calendar weeks is covered (§ 201.023). An employing unit that already owes federal unemployment tax (FUTA) is covered (§ 201.025). A domestic-service employer at $1,000 cash wages in a calendar quarter is covered (§ 201.027). Farm and ranch labor is covered under § 201.047. A unit that elects to become an employer is covered under § 206.002. TWC’s determine-tax-account page is the agency restatement of who must have an account.

Ten days after you become liable, and not before wages are paid

TWC’s register-tax page says to register within 10 days of becoming liable under the Texas Unemployment Compensation Act (TUCA). That 10-day clock is TWC’s instruction. Confirm it on the live TWC page.

The Unemployment Tax Registration FAQ says Unemployment Tax Registration (UTR) cannot be used until wages have been paid to persons working in Texas. Liability first. Wages paid next. Then the application.

UTR opens the account. UTS is where you file. TxUS is not live yet.

The registration portal is Unemployment Tax Registration (UTR). After TWC issues the account, quarterly work happens in Unemployment Tax Services (UTS). The quarterly filing TWC names is the Employer’s Quarterly Report (Form C-3).

TWC’s Texas Unemployment System (TxUS) announcement says TxUS is replacing UTR and UTS. Official go-live is not yet determined. Old passwords will not transfer. Keep using UTR and UTS until TWC announces go-live.

The contribution is the employer’s. Use the rate on the TWC notice.

Labor Code § 204.002 requires an employer to pay a contribution on wages for employment. § 204.003 says the employer may not deduct any part of that contribution from wages.

The initial contribution rate in § 204.006 is the greater of the major-group rate minus 0.1%, or 2.6%, until an experience rate takes effect. § 204.121 adds a separate employment and training investment assessment of one-tenth of one percent of wages. The taxable wage base is the first $9,000 paid to an individual in a calendar year (§ 201.082(1)). Use the rate on the notice TWC assigns, not a number from a software page.

New hire is an Attorney General report, not a TWC quarterly box

The Office of the Attorney General Child Support Division is the new-hire agency. Employers must report new hires and rehires within 20 calendar days from the date the employee starts earning wages. The same OAG page says quarterly wage reporting is not the same as new-hire reporting. A TWC quarterly report does not satisfy that clock.

Workplace injury insurance is optional for most private employers

Labor Code § 406.002(a) says that except for public employers and as otherwise provided by law, an employer may elect to obtain workers’ compensation insurance coverage. TDI’s employer page states the same fact in agency language. Texas does not require most private employers to have workers’ compensation coverage. Employers who do not subscribe still have duties. Those duties include DWC Form-005 and the notices TDI lists for nonsubscribers. That is the opposite of a mandatory first-shift policy.

How Gusto and Patriot describe Texas

Confirm the live account in UTS and any workplace injury insurance election on TDI.

Gusto’s Texas help article names TWC only. It restates the $1,500 / 20-week tests and the 10-day registration clock. Middesk (Gusto’s business-verification company) is described as registering state unemployment tax (SUI). Texas has no state income-tax withholding (no SIT). That generic Middesk sentence is not a Texas withholding registration. The same article lists the Employer’s Quarterly Report (Form C-3) and a New Hire Report among filings. It tells you to enter a real TWC tax account number, not a Comptroller ID. Read Gusto’s article. See Gusto on the directory.

Patriot’s Texas tax table says Full Service calculates and files Texas Unemployment Insurance (SUI) on Form C-3. The article does not claim TWC registration. Use the rate on your TWC notice, not a number from a software page. Read Patriot’s article. See Patriot on the directory.

What still sits on the employer

• Determine TUCA liability under the tests TWC and Chapter 201 publish.
• File UTR within 10 days after becoming liable, and only after wages have been paid to persons working in Texas.
• Hold the TWC number TWC issues. Do not substitute a Comptroller taxpayer number.
• Complete any third-party administrator (TPA) authorization the software asks TWC to recognize.
• Enter the TWC-assigned rate from the agency notice, not a marketing figure.
• File the OAG new-hire report within 20 calendar days, even if a C-3 also goes out.
• Make the TDI workplace injury insurance election if they choose, including nonsubscriber notices.
• Do not open a state paycheck-withholding account. Texas does not withhold state income tax from paychecks.

Related guide: Hiring your first employee lists the federal forms that still apply when Texas has no paycheck withholding.

Related guide: Can I do my own payroll? covers the federal withholding and deposits that still apply when Texas has no paycheck withholding.

Related guide: Independent contractor vs employee is the federal label check. No Texas paycheck withholding does not make a worker a contractor.

Related guide: Best payroll software for small business is a checklist for grading a product against the TWC account and the Attorney General new-hire report.

Related guide: How to pay employees covers the federal check. Texas still bars a deduction of the unemployment contribution from wages.

Related guide: Employer payroll taxes percentage is the federal share on top of wages. Texas bars a deduction of the unemployment contribution, and the wage base is the first $9,000.

Related guide: How to pay tips to employees covers the federal tip report. Texas still bars a deduction of the unemployment contribution from wages.

Related guide: How to run payroll is the federal payday. Texas still has no state income tax to take off that check.

Also forming a company in Texas? Process Score compares registered agents there.