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Overview
Liable employers report employee wages and pay the unemployment tax based on state law under the Texas Unemployment Compensation Act (TUCA). Wages are reported when they are paid rather than when they are earned or accrued. Employers report employee gross wages each quarter and pay taxes on the first $9,000 per employee, per year. In most cases, all wages must be reported. However, exempt wages are outlined in TUCA, Section 201.082. Examples of special circumstances include:
- Wages of a sole proprietor are not reported.
- Wages paid to partners, guaranteed or otherwise, are not reportable.
- Wages paid by a corporation or LLC to officers/members are reportable, regardless of how the IRS treats the entity.
Reporting Employee Wages
Submit employers’ quarterly wage reports electronically in the month that follows each calendar quarter (April, July, October and January) including any quarters with no wages paid. The wage report reflects the gross wages paid during the quarter and the total amount of taxable wages. See 815.107 (d) for further information.
For each employee, provide a Social Security number, name and the amount of gross wages paid.
Employers or other entities reporting wages in any one calendar quarter are required to report electronically. The electronic reporting requirement also applies to agents reporting on behalf of multiple employers.
For state unemployment tax purposes, only the first $9,000 paid to an employee by an employer during a calendar year constitutes "taxable wages." An employer cannot count wages paid by another employer to an employee in the calendar year toward this $9,000 taxable limit unless he is a successor to the prior employer, and transfer of compensation experience is applicable.
The following is an example of the amount of wages to be reported by an employer, assuming that he had only one employee for the year, who was paid $4,000 per month.
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |
|---|---|---|---|---|
| Total Wages Paid | $12,000 | $12,000 | $12,000 | $12,000 |
| Wages over $9,000.00 | $3,000 | $12,000 | $12,000 | $12,000 |
| Taxable Wages Paid | $9,000 | 0 | 0 | 0 |
| Effective Tax Rate | 1.00% | 1.00% | 1.00% | 1.00% |
| Amount of Tax | $90 | 0 | 0 | 0 |
In this example, the employer must file reports for the second, third and fourth quarters even though no tax is due and the employer has met the tax obligation for the employee for the calendar year.
Reimbursing employers also submit quarterly reports of the wages paid to their employees, but do not pay any tax. Reimbursing employers reimburse TWC if benefits are paid to a former employee.
Determining How Much Tax is Due
To calculate the amount of tax to be paid by an employer, multiply the amount of taxable wages paid during the quarter by the employer’s effective tax rate.
If the employer paid $9,000 in taxable wages in the first quarter of the year and their effective tax rate was 1.00%, the amount of tax due is 1.00% of $9,000, or $90. No tax is due for the second, third and fourth quarters.
Multi-State Employers
Employers with employees working in more than one state need to determine to which state to report the employee’s wages.
TWC uses the location of services checklist to determine whether an employee’s wages are taxable in Texas. Determinations are based on the employee’s work situation and not the employer or the state of the employee’s residence address.
Taxable & Non-Taxable Benefits
The treatment of Cafeteria and 401(k) plans for unemployment insurance reporting purposes differs from state to state. Employee contributions used to fund benefits by salary reduction or deduction from the employee's base pay would be taxable as wages, regardless of what they are used to purchase or provide.
Cafeteria Plan Benefits
A Cafeteria Plan is a formal and written employee benefit plan offered to all employees. Participants may choose benefits consisting of cash and statutory non-taxable benefits.
In Texas, if an employer offers a Cafeteria Plan benefits package to its employees, the following non-taxable benefits are not required to be reported as wages:
- Retirement
- Sickness or accidental disability
- Medical or hospital expenses in connection with sickness or accidental disability
- Death benefits, such as life insurance
If employer funds were used to purchase benefits not listed above (for example, day care, profit sharing or deferred compensation), those benefits are taxable wages and must be reported to TWC.
401(k) Plans
A 401(k) Plan is an elective contribution and deferral to a plan containing a qualified cash or deferral compensation arrangement.
Employer contributions into a 401(k) trust are not considered taxable wages for state unemployment tax purposes only if both of these two requirements are met:
- The trust meets the requirements of Section 401(a) of the Internal Revenue Code.
- The trust is exempt under Section 501(a) of the Internal Revenue Code.
Employee contributions from a salary reduction or deduction from the employee's base pay are taxable under Texas state unemployment tax laws.
