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Overview
The Unemployment Tax program collects wage information and unemployment taxes from employers subject to the Texas Unemployment Compensation Act (TUCA). The taxes support the state’s Unemployment Compensation Fund, a reserve from which unemployment benefits are paid to eligible workers who are unemployed through no fault of their own. Unemployment taxes are not deducted from employee wages.
Most employers are required to pay Unemployment Insurance (UI) tax under certain circumstances. The Texas Workforce Commission uses three employment categories: regular, domestic and agricultural. Employer tax liability differs for each type of employment. For more information, see Definition & Types of Employment.
Liable employers must register with TWC to create a tax account and in each calendar quarter, report wages paid to employees and pay taxes due. For state unemployment tax purposes, only the first $9,000 paid to an employee by an employer during a calendar year constitutes "taxable wages." Quarterly wage reports and taxes must be filed and paid by the last day of the month following the end of the calendar quarter. For detailed information see Reporting & Determining Taxable Wages, Employer’s Quarterly Wage Report Filing Options and Payment Options for Unemployment Tax.
See Domestic Employment for information about unemployment tax and domestic employee wages including employer registration requirements and options for reporting wages and paying taxes.
Which Employers Must Pay
The Texas Unemployment Compensation Act (TUCA) defines which employers must report employee wages and pay unemployment taxes. We refer to them as “liable employers.” Liability for the tax is determined by several different criteria. Once wages are paid, employers should register with the Texas Workforce Commission (TWC) within 10 days of becoming liable for Texas unemployment tax. For more information, see Determine Whether You Need to Establish an Unemployment Tax Account.
Definition of Employment
Employment is any service performed for payment or compensation. This definition includes any hiring contract, whether written, oral or implied. The three essential elements to the definition of employment are service, wages, and direction and control.
For more information about types of employment, including the difference between an employee and an independent contractor, see Definition & Types of Employment.
The Texas Unemployment Compensation Act (TUCA) applies to services individuals perform for wages, unless TWC deems otherwise. If you are uncertain whether the TUCA applies for you, contact the TWC Tax Department.
Definition of Wages
Wages are the compensation provided to someone in exchange for services or labor. Wages include hourly or salary income earned, back pay, tips, taxable reimbursements, severance pay and commissions.
Wages considered in the computation of taxes are defined under the Federal Unemployment Tax Act, 26 U.S.C. Section 3301. There are certain exceptions to the term "wages" which are listed in chapter 201 of the Texas Unemployment Compensation Act (TUCA).
For detailed information on what are taxable wages that a liable employer must report, as well as how wages are reported, see Reporting & Determining Taxable Wages.
