Liable employers report employee wages and pay the unemployment tax. The Texas Unemployment Compensation Act (TUCA) is the basis for reporting requirements. Employers report wages when paid rather than when earned or accrued. Employers report employee gross wages each quarter. They pay taxes on the first $9,000 per employee, per year. In most cases, employers must report all wages. However, TUCA provides for specific exempt wages in TUCA, Section 201.082.
Examples of other 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.
Employers submit quarterly wage reports in the month that follows each calendar quarter (April, July, October, and January). This includes any quarters with no wages paid. The wage report shows 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.
Wage reports must be submitted electronically. Agents who report for multiple employers must also submit reports electronically.
For state unemployment tax purposes, only the first $9,000 paid to an employee by an employer during a calendar year is "taxable wages." In general, an employer cannot count wages paid by another employer to an employee in the calendar year toward this $9,000 taxable limit. The exception is if he is a successor to the prior employer and transfer of compensation experience applies.
The following is an example of the wages that are reportable by an employer. The example assumes 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 still file reports for the second, third and fourth quarters even though no tax is due. The employer paid the tax obligation for the employee in the first quarter for the calendar year.
Reimbursing Employers also submit quarterly reports of the wages paid to their employees, but do not pay a tax. Reimbursing employers reimburse TWC if benefits are paid to a former employee.
To calculate the amount of tax due, 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.
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.
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:
- 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.
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 the following 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.