Operating a business in Texas is ideal because there are no income taxes. Employers are required to withhold payroll taxes from their employee’s paychecks. Texas mainly follows the federal laws about business taxes and fees. There are certain guidelines to help new business owners set up payroll taxes correctly.
Obtain your tax accounts
An employer must select a business entity and be assigned an employer identification number (EIN). Every business needs this EIN as a form of identification to file taxes with the IRS.
Before setting up payroll taxes, register your business with the Texas Workforce Commission (TWC) and obtain your tax account number. You need this number to pay wages and make unemployment tax payments to employees.
Calculate your employees’ taxes
While you hire new employees, collect their payroll information on tax forms and direct deposit forms. Texas law requires employers to pay employees at least once or twice a month. The payroll taxes must be calculated for the amount of every paycheck.
File payroll taxes with the federal and state governments and file state unemployment insurance taxes. As of 2021, the state unemployment insurance tax rates vary from 0.31% to 6.31%. You have to include Social Security and Medicare tax withholdings from employees’ paychecks. You have the option to file your wage reports online.
Stay compliant with all tax regulations
Texas has fewer regulations for business owners when it comes to filing their taxes. However, not filing your payroll taxes correctly and on time leads to heavy fines and interest. You have to set up the system correctly the first time based on your state’s business tax laws.