The Texas Unemployment Compensation Act (TUCA) defines which Texas employers must pay unemployment taxes. We refer to them as "liable employers".
Liable Texas employers include:
- Sole proprietorships
- Limited Liability Companies (LLC) and Professional Limited Liability Companies (PLLC)
- Limited Partnerships (LP) and Limited Liability Partnerships (LLP)
- Professional Corporations (PC)
- Professional Associations (PA)
- Corporations and Foundations
- Associations, Trusts, and Estates
- Banking institutions
- Political Subdivisions and Governmental Agencies
Liable employers report employee wages and pay the unemployment tax. The TUCA is the basis for determining employer liability. The TUCA contains several different criteria used to determine an employer's liability. Texas employers only need to meet one of the criteria to become liable.
Employers who pay wages must register with the Texas Workforce Commission (TWC) within ten days of becoming liable under TUCA.
Employers become liable once they have met one of the following liability requirements:
- An employing unit that is liable under the Federal Unemployment Tax Act (FUTA) and has paid wages to Texas employees
- An employing unit that pays $1,500 or more in total gross wages in a calendar quarter or has at least one employee during twenty different weeks in a calendar year regardless of the wages. The employee does not have to be the same person for twenty weeks. And the twenty weeks do not have to be consecutive. It also does not matter if the employee is full time or part time.
- An individual or employing unit that acquires or otherwise receives, through any means, all or part of the organization, trade, business, or workforce of another that was a liable employer at the time of the acquisition
- An employing unit that is a 501(c) (3) non-profit organization and has four or more employees during 20 different weeks in a calendar year. The employees do not have to be the same four employees for twenty weeks. And the twenty weeks do not have to be consecutive. It also does not matter if the employees are full time or part time.
- An employing unit that volunteers to become liable even though they do not currently meet the required criteria
- All political subdivisions of the state of Texas are liable. This includes municipalities, counties, utility districts, public education institutions, etc.
- An employing unit that paid cash wages of $1,000 or more in a calendar quarter for domestic services.
- An employing unit engaged in farm and ranch labor if:
- It employs three or more employees for twenty weeks or more in a calendar year or pays at least $6,250 in total gross wages in a calendar quarter. The employees do not have to be the same three employees for twenty weeks. And the twenty weeks do not have to be consecutive. It also does not matter if the employees are full time or part time.
- The service is performed by a seasonal worker on a truck farm, orchard, or vineyard.
- The worker is a migrant or a seasonal worker who works for a farmer, ranch operator, or labor agent who employs migrant workers.
Some services are excluded from the definition of employment, and thus not subject to unemployment tax.
See Definition & Types of Employment for examples of exempt services.
Employers may not be liable if they hire independent contractors or pay their workers through a Professional Employer Organization (PEO).
Those Who Hire Independent Contractors
Independent contractors are not considered employees. So, the employer is not liable for paying unemployment taxes for payments to independent contractors. It is important to correctly classify workers.
It is not enough for the employer and the worker to agree that the worker will be treated as an independent contractor. For guidance, see Classifying Employees & Independent Contractors and review Employment Status - A Comparative Approach.
Employees Paid Through a Professional Employer Organization
“Staff leasing” is an arrangement by which employees of a Professional Employer Organization (PEO) are assigned to work at a client company. "Staff leasing" does not include:
- Temporary help service
- Independent contractor
- Temporary common worker employer, such as those who use day laborers
In general, a client employer leases their employees to a PEO. The PEO then leases the employees back to the client employer. The employees usually perform the same services they performed for the PEO's client. This is intended to be long-term or continuing arrangement, rather than temporary or seasonal.
If your employees are paid through a Professional Employer Organization (PEO), you are not liable to report their wages. PEOs report wages and pay taxes on all workers leased to client companies. PEOs report and pay under their own tax account numbers. Only properly licensed PEOs can be the employers of leased workers for purposes of the TUCA. If your PEO does not have an active license, you, the client employer, must report the employees and pay the taxes.
All PEOs who operate in Texas must have a Staff Leasing license from the Texas Department of Licensing and Regulation. Also, each PEO must report quarterly on forms prescribed by TWC, the following information for each of their clients:
- Telephone number
- Federal Employer Identification Number
- Standard Industrial Code number of the client company
A PEO whose license is denied, revoked or not yet active will not be considered the employer by TWC. Each client of an unlicensed PEO must report their workers' wages. Each client of an unlicensed PEO must also pay taxes under their own account number at their own assigned tax rate. If a client's account has been inactive for more than three calendar years and the company then resumes employment of their own workers, they will receive a new account number and a tax rate of 2.7 percent.
A group of related corporations may apply to use a common paymaster to pay its employees. A common paymaster is any group member that pays employees of two or more of those corporations on their behalf. The common paymaster keeps the books and payroll records about those employees.
Related corporations who wish to use a common paymaster must be pre-approved by TWC. They must file the details of their plan on an Application for Common Paymaster Agreement. TWC will review and determine eligibility.
This is a general description of using a common paymaster. Please refer to Rule 815.117. Employing Units: Common Paymaster for specific details and requirements.
Qualification requirements include, but are not limited to:
- All entities must be corporations listed under Title 2 of the Texas Business Organization Code.
- All Corporations must be employers.
- All Corporations must be related.
- There must be concurrent employment between the proposed common paymaster and all the related corporations.
- An agreement between corporations, where one corporation agrees to consolidate the payroll of the group, does not qualify the group for common paymaster. That is payrolling and is not allowed in Texas.
- TWC must approve the common paymaster status before you can begin reporting as a common paymaster.
- Plans and plan amendments submitted under the rule must be filed within the 30-day period following the end of the calendar quarter in which the plan is in effect. Eligibility of an employee to be compensated through a common paymaster will be determined on a quarterly basis.
- Proof that the corporations are related and that employees are the concurrently employed are required with the application.
- Rules are subject to change.
To request an application, please email us at email@example.com.