Texas has no state income tax, so payroll tax in Texas means only federal taxes

Texas does not impose a state income tax on wages, which means you and your employer do not pay state payroll tax. The payroll taxes that come out of a Texas paycheck are entirely federal: Social Security tax, Medicare tax, and federal income tax withholding. These three taxes are the same rate in Texas as everywhere else in the United States.

Because Texas has no state income tax, a Texas paycheck typically has fewer deductions than a paycheck from someone in a state like California or New York. However, Texas employers still withhold and remit the federal payroll taxes on the same schedule and in the same amounts as employers in other states.

Key Takeaways

  • Texas employers withhold Social Security tax at 6.2% of wages, Medicare tax at 1.45%, and federal income tax at a rate that depends on your W-4 form — state income tax does not explore.
  • Employers pay a matching 6.2% for Social Security and 1.45% for Medicare on top of your wages, plus federal unemployment tax of 0.6% on the first $7,000 of each employee's annual wages.
  • The federal income tax withholding rate varies by person based on the number of dependents, filing status, and other factors you report on your W-4.
  • Additional Medicare tax of 0.9% applies to wages above $200,000 for single filers and $250,000 for married couples filing jointly, and this is withheld from the employee's pay.

Employee payroll tax rates in Texas

When you receive a paycheck in Texas, three federal taxes are withheld: Social Security, Medicare, and federal income tax. Social Security tax is 6.2% of your gross wages, up to a wage cap that changes each year (in 2024, the cap is $168,600). Once your wages reach that cap in a calendar year, no more Social Security tax is withheld for the rest of that year.

Medicare tax is 1.45% of all your wages with no cap — it continues to be withheld no matter how much you earn. If your income exceeds certain thresholds, an additional Medicare tax of 0.9% is withheld. For 2024, this additional tax applies to wages over $200,000 for single filers, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately.

Federal income tax withholding is not a flat rate. The amount withheld depends on information you provide on your W-4 form: your filing status, number of dependents, and other income. Two people earning the same wage can have different amounts of federal income tax withheld based on their W-4 choices.

Employer payroll tax rates in Texas

Employers in Texas pay matching taxes on behalf of their employees. For every employee, the employer pays 6.2% for Social Security (up to the same wage cap as employees) and 1.45% for Medicare with no cap. These are in addition to the wages paid to the employee.

Employers also pay federal unemployment insurance tax (FUTA) at a rate of 0.6% on the first $7,000 of each employee's wages per year. This tax funds the federal unemployment insurance system. Some employers may receive a credit that lowers this rate if they have a good record of not laying off workers, but the standard rate is 0.6%.

Texas does not have a state unemployment insurance tax separate from the federal system, which is one reason Texas payroll costs are lower than in states that impose both federal and state unemployment taxes.

How federal income tax withholding works in Texas

Federal income tax withholding is calculated using the W-4 form you complete when you start a job. The form asks for your filing status, number of dependents, and whether you have other income or jobs. Your employer uses this information along with IRS withholding tables to determine how much federal income tax to deduct from each paycheck.

The withholding is an estimate — it is meant to approximate the federal income tax you will owe at the end of the year. If too much is withheld, you receive a refund when you file your tax return. If too little is withheld, you owe money. You can adjust your withholding at any time by submitting a new W-4 to your employer, which is useful if your life circumstances change (marriage, a second job, dependents, or a significant change in income).

Self-employed payroll tax in Texas

If you are self-employed in Texas, you pay both the employee and employer portions of Social Security and Medicare tax, combined into what is called self-employment tax. The self-employment tax rate is 15.3% (12.4% for Social Security and 2.9% for Medicare), calculated on your net business income after deducting business expenses.

Self-employed people do not pay federal income tax withholding automatically — instead, they typically make quarterly estimated tax payments to the IRS. Because Texas has no state income tax, self-employed Texans do not make state estimated payments. You can deduct half of your self-employment tax when calculating your federal income tax, which provides some offset to the higher combined rate.

Comparing Texas payroll costs to other states

Texas payroll taxes are lower than in states with state income tax because there is no state income tax to withhold. A Texas employee earning $50,000 per year pays no state income tax, whereas an employee in California or New York would pay state income tax in addition to the federal taxes described above. The federal payroll taxes are identical across all states, but the absence of state income tax in Texas means lower total payroll deductions.

However, Texas does have other taxes that affect businesses and individuals, such as sales tax (which varies by location but is at least 8.25%) and property tax. The lack of state income tax does not mean Texas has no taxes — it means the tax burden is distributed differently, through consumption taxes and property taxes rather than income taxes.

Frequently Asked Questions

Does Texas have state payroll tax?

No. Texas does not impose state income tax, so there is no state payroll tax withheld from paychecks. Only federal payroll taxes (Social Security, Medicare, and federal income tax withholding) are deducted in Texas.

What is the total payroll tax rate for an employee in Texas?

The combined rate is 7.65% for Social Security and Medicare (6.2% + 1.45%), plus federal income tax withholding, which varies by person. If you earn over the income thresholds for additional Medicare tax, add 0.9% to your rate. Federal income tax withholding depends on your W-4 form and typically ranges from 0% to 22% or more, depending on your situation.

Do employers in Texas pay unemployment tax?

Yes. Employers pay federal unemployment insurance tax (FUTA) at 0.6% on the first $7,000 of each employee's annual wages. Texas does not have a separate state unemployment tax — it uses the federal system only.

What happens if I change jobs during the year in Texas?

Social Security tax is withheld on all wages you earn, up to the annual wage cap. If you work for two employers in the same year and your combined wages exceed the cap, you may have overpaid Social Security tax. You can claim a credit for the overpayment when you file your federal tax return.

Can I reduce my federal income tax withholding in Texas?

Yes. You can submit a new W-4 form to your employer at any time to adjust your withholding. If you expect to owe less tax or want a smaller refund, you can claim more allowances on your W-4, which reduces the amount withheld from each paycheck.