Texas is a very colorful state. You immediately think of the wild west, ranch and cowboys, westerns at the mention. There are a lot of music festivals, delicious barbecues, and mind-blowing sunsets. Many would like to live and work in this state.
If it is also your plan, you're probably very interested in understanding what deductions and why you will see on your paystubs in Texas.
This state is unique in its colors and even in payroll taxation. The law imposes on the employer the need to pay only one tax at the state level. It's about unemployment insurance. Texas represents the lowest payroll tax burden compared to other states.
Business owners who want to understand their employees' payroll taxation on their own will be interested to read the following information.
Wages in Texas.
Wages are a universally recognized form of compensation for work functions performed. Humankind has endowed the wage with several essential functions, the main one being a stimulus. With the help of monetary remuneration of labor, employees are highly motivated to perform more work duties and increase the quality of work performance.
To provide minimum protections for employees, the USA, and the states set the minimum wage the employer must pay an employee.
The federal minimum wage governs Texas because there is no state minimum. It is $7.25 per hour. It was set back in 2009 and has not changed. For workers who receive tips, the amount is $2.13 per hour. Employers have discretion in calculating tips and the cost of lodging and meals.
Employers notify employees about employment law by posting information about the Fair Labor Standards Act, the Military Employment and Reemployment Rights Act, the Texas Business Enterprise Act, and the Workers' Compensation Program in the form of posters.
Before allowing an employee to perform their tasks, it would be best if the company asked the employee to fill out and sign a W-4 form. You have the statutory right to request a completed Form W-4. It would be helpful if you did it before the employee was allowed to work.
This form contains everything the employer may need to calculate wages and deduct payroll taxes correctly. If a company unaware enables an employee to work before they fill out the W-4, it can create problems if the employee is suddenly laid off.
Payroll taxes.
The taxes deducted from wages in Texas consist only of Social Security, Medicare, and unemployment insurance. The information is current for wages paid in 2022.
Income Tax.
Texas officially prohibits income tax in the state constitution, which is a good tax advantage for the state. Such a provision also exempts you from the obligation to file a Texas income tax return. This information is also essential for self-employed and independent contractors, who do not have to pay such a tax.
Employees only have to pay federal income tax. The national income tax can range from 0% to 37%.
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Social Security Tax
Employers (small business owners) and employees must pay a Federal Insurance Contributions Act (FICA) tax, called the Social Security Tax. Its rate is 6.2%. The tax is deductible on income that does not exceed $147,000. The IRS changes these rates annually, so you should always check to see if the rates are up to date.
Sick and family leave wages paid by an employer in 2022 for leave taken after March 31, 2020, and before April 1, 2021, are not subject to the employer's Social Security tax. That means the tax rate on those wages is 6.2%, not 12.4%.
Medicare
The Medicare tax rate is 1.45% of an employee's yearly earnings. There is no base wage limit for the Medicare tax. For the amount that exceeds $200,000 (or $250,000 for a married couple's joint return), an additional 0.9% per year will have to be paid. But only employees will pay this amount.
Federal Unemployment Tax
FUTA (The Federal Unemployment Tax Act) provides unemployment compensation for workers who lose their jobs. You are subject to FUTA tax under the following circumstances:
In 2022, the company is subject to FUTA tax on wages it pays to workers who are not agricultural or domestic if:
It paid wages of $1,500 or more in any calendar quarter in 2021 or 2022, or
It had one or more employees for at least some part of the day during any 20 or more separate weeks in 2021 or 20 or more different weeks in 2022.
Domestic workers.
The FUTA tax would apply to the employer if he paid total cash wages of $1,000 or more to domestic workers in any calendar quarter of 2021 or 2022.
You are subject to the FUTA tax on wages you paid to farmers if:
You paid cash salaries of $20,000 or more to farmers during any calendar quarter of 2021 or 2022, or
You employed ten or more farm workers for at least some part of the day (whether simultaneously or not) during any 20 or more different weeks in 2021 or 20 or more different weeks in 2022.
In 2022, the FUTA tax rate will be 6.0%. The tax spreads to the first $7,000 you pay each worker as salaries during the year. The $7,000 is the federal salary base.
State Unemployment Tax
This issue is governed by the Texas Unemployment Compensation Act (TUCA). Most employers are required to pay UI (Unemployment Insurance) tax under certain circumstances. The Texas Workforce Commission uses three categories of employment: regular, domestic, and agricultural.
For state unemployment tax objectives, only the first $9,000 paid to an employee by an employer in a calendar year constitutes "taxable wages."
The minimum tax rate is 0.31%, and the maximum is 6.31%.
Businesses can take advantage of filing and paying federal taxes electronically whether you use the help of a tax professional or calculate it yourself. The IRS offers convenient programs that make filing and paying taxes much more accessible.
