What Taxes Are Taken Out of an Employee's Payroll in Texas?

by Grace Ferguson ; Updated September 11, 2015

Most states require employers to withhold state income tax from employees’ paychecks. In some cases, the city or local government requires city or local income tax withholding. The state of Texas does not require state, city or local income tax withholding. Still, Texas employees are subject to federal withholding laws, which the Internal Revenue Service oversees.

Federal Income Tax

Texas employers are required to withhold federal income tax from employees’ wages. To help figure the withholding amount, the employer gives each new employee a W-4 form to complete. The employee includes her withholding terms, such as allowances, filing status and any additional taxes to be withheld from each paycheck on the form. The employer uses the employee’s W-4 information and the IRS Circular E’s federal withholding tax tables to figure the withholding amount, which varies by employee. The employer can use the Circular E’s wage bracket, which gives the exact amount to withhold based on the employee’s filing status, allowances, pay period and wages. It should use the percentage method if the employee’s income exceeds the wage bracket’s income range or if she claims more than 10 allowances on her W-4. The employer uses the percentage method allowance table (as shown on page 37 of the 2010 Circular E) and the percentage calculation table (as shown on page 39) to figure the withholding amount.

Social Security Tax

Texas employers and employees are subject to equal portions of Social Security tax. Each pays 6.2 percent of gross earnings, up to the yearly wage limit of $106,800. Once the employee reaches this amount for the year, the employer stops the withholding. It resumes the withholding when the New Year begins.

Medicare Tax

Employers and employees in Texas are both subject to equal portions of Medicare tax. Notably, Social Security tax and Medicare are components of the Federal Insurance Contributions Act, or FICA – the law that authorizes their collection. The employer and the employee pay 1.45 percent of gross income for Medicare tax. Medicare does not have an annual wage limit. It is paid on all wages.

Considerations

Texas employers report and pay federal withholding taxes to the IRS. In most cases, employers perform quarterly or annual tax reporting, and tax payment on a semiweekly or monthly basis. A Texas employee is not subject to federal income tax withholding if he claims, and qualifies for, exempt on his W-4 form. Texas employees are entitled to a pay stub showing deductions (including taxes) made from the employee’s paycheck and their purpose.

About the Author

Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.