What Texas employers pay in unemployment insurance tax

Texas employers pay unemployment insurance tax to fund the state's unemployment benefit system. The tax rate you pay depends on your industry, your history of employee claims, and whether you are a new employer. Texas uses an experience rating system, which means employers with fewer claims pay lower rates than those with more claims.

For 2024, the standard tax rate range in Texas is 0.42% to 5.4% of each employee's wages, up to a wage base limit. The wage base — the maximum amount of an employee's annual earnings subject to tax — is set each year by the Texas Workforce Commission (TWC). New employers typically pay the standard rate for their industry until they have enough claim history to receive an individual rate.

You owe tax on wages you pay to employees who work in Texas, even if your business is located elsewhere. If you have employees in multiple states, you report and pay each state separately.

Key Takeaways

  • Texas unemployment tax rates range from 0.42% to 5.4% depending on your claim history and industry, applied to wages up to an annual wage base limit set by TWC each year.
  • New employers pay the standard rate for their industry until they accumulate enough employee claim history to receive an experience-based rate.
  • You must register with TWC, obtain an account number, and file quarterly reports even if you owe no tax in a given quarter.
  • Failure to pay on time results in penalties, interest, and potential loss of the ability to do business in Texas.
  • You can reduce your tax rate by managing claims — contesting invalid claims and rehiring separated employees when possible.

How to register as an employer in Texas

Before you can pay unemployment tax, you must register with the Texas Workforce Commission. You can register online through the TWC employer portal or by mail. Registration is free and takes about 10 minutes online.

To register, you will need your Federal Employer Identification Number (EIN), the date you first hired employees in Texas, your business structure (sole proprietor, LLC, corporation, etc.), and the nature of your business. TWC will assign you an account number and a rate group based on your industry classification. This rate group determines your base tax rate until your claim history changes it.

Once registered, you receive a notice of account assignment in the mail. Keep this document — it contains your account number, which you use on all quarterly reports and payments. If you do not register and an employee files a claim, TWC will contact you and may assess penalties.

Filing quarterly reports and paying tax

Texas requires employers to file a Quarterly Contribution Report (also called a wage report) four times per year, even if you had no employees that quarter. The report is due by the last day of the month following the end of each quarter: April 30, July 31, October 31, and January 31.

On the report, you list each employee's name, Social Security number, and gross wages paid during the quarter. TWC uses this information to calculate your tax liability and to match wages to unemployment claims. You can file online through the TWC portal, by mail, or through a payroll service.

Payment is due on the same date as the report. You can pay online, by check, or through an electronic funds transfer. If you pay late, TWC charges a penalty of 10% of the unpaid tax plus interest at the rate set by state law. If you fail to file or pay for two consecutive quarters, TWC may revoke your business registration and refer the debt to the state comptroller for collection.

How your tax rate is calculated and adjusted

Your tax rate is recalculated every July 1 based on your reserve account balance — the difference between the total tax you have paid and the total benefits paid to your former employees. A positive balance (more paid in than drawn out) lowers your rate. A negative balance (more drawn out than paid in) raises your rate.

New employers are assigned to a standard rate group for their industry for the first two to three years. After that, TWC calculates an individual rate based on your reserve account. If you have a strong reserve account, you may may have access to for a merit rate, which is lower than the standard rate. If your account is negative, you may be assigned a penalty rate, which is higher.

You can request a rate review if you believe TWC made an error in calculating your rate. The request must be filed by March 31 for rates that take effect July 1. If you disagree with the decision, you can appeal to the Texas Workforce Commission Appeals Tribunal.

Reducing your tax rate through claims management

Because your rate is tied to claims paid on your account, you can lower your future rate by managing claims carefully. When a former employee files for benefits, TWC sends you a notice and gives you a window (usually 10 days) to protest the claim if you believe the person is not may have access to to benefits.

Common grounds for protest include: the employee quit without good cause, was fired for misconduct, or is not available to work. If you protest and TWC agrees with you, that claim does not count against your reserve account. If you do not protest, the claim is allowed by default and reduces your reserve balance.

You can also reduce claims by rehiring separated employees when possible. If an employee returns to work, any benefits they received while separated may not count against your account in some circumstances. Document all separations and the reason for each one — this record helps if you need to protest a claim later.

Special situations and exemptions

Some employers are exempt from paying Texas unemployment tax. These include certain religious organizations, Indian tribes, and employers with fewer than a certain number of employees in specific circumstances. However, most for-profit businesses and nonprofits must pay.

If you are a household employer (paying someone to work in your home), you may owe unemployment tax if you pay that person more than a threshold amount per quarter. The threshold changes each year; check the TWC website for the current amount.

If you have employees in Texas and other states, you must register separately in each state and pay each state's rate. Some states have reciprocal agreements that simplify this process, but Texas does not. File and pay each state on its own schedule.

What happens if you do not pay

If you do not register, file, or pay on time, TWC takes escalating action. First, you receive notices and a demand for payment. If you do not respond, TWC may assess penalties (10% of unpaid tax), interest, and a failure-to-file fee. Your business registration can be revoked, which prevents you from renewing licenses and permits.

Unpaid unemployment tax can also be referred to the state comptroller's office for collection, which may result in wage garnishment, bank levies, or a lien on your property. If you are sued by TWC or a creditor, you may also owe attorney fees and court costs.

If you are having trouble paying, contact TWC when ready. In some cases, you may be able to set up a payment plan or request a hardship waiver of penalties. Ignoring the debt only makes it worse.

Frequently Asked Questions

Do I have to pay unemployment tax if I have only one employee?

Yes. Texas requires all employers to pay unemployment tax, regardless of the number of employees. The only exceptions are certain religious organizations and a few other specific categories. Register with TWC as soon as you hire your first employee.

What is the wage base limit and how does it affect what I owe?

The wage base is the maximum amount of each employee's annual wages subject to unemployment tax. For 2024, it is set by TWC and changes each January. Once an employee's wages reach the limit in a calendar year, you stop paying tax on their additional wages for that year. The limit resets on January 1.

Can I deduct unemployment tax from my employee's paycheck?

No. Unemployment tax is an employer expense only. You cannot deduct it from employee wages. Your employees do not pay unemployment insurance tax in Texas. You pay the full amount based on your tax rate and the employee's gross wages.

What if I disagree with my tax rate?

You can request a rate review by March 31 if you believe TWC made an error. Submit the request through the TWC portal or by mail. If you disagree with the review decision, you can appeal to the Texas Workforce Commission Appeals Tribunal within 30 days of the decision.

How do I protest an unemployment claim to protect my rate?

When TWC notifies you of a claim, you have about 10 days to submit a protest. You can protest online through the TWC portal or by mail. Include the reason (quit without cause, fired for misconduct, not available to work) and any supporting documents. If TWC agrees, the claim does not count against your reserve account.