The Texas Workforce Commission (TWC) uses three employment categories: regular, domestic and agricultural. Employer tax liability differs for each type of employment.
The Texas Unemployment Compensation Act (TUCA) establishes the provisions of the Unemployment Insurance (UI) system in Texas, defines employment and establishes which types of employers participate in the unemployment tax system. These employers are referred to as “liable employers.”
Liable Texas employers include:
- Sole Proprietorships
- Partnerships
- 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
- Foundations and Associations
- Trusts, Estates and Banking Institutions
- Political Subdivisions and Government Agencies
Employment is any service performed for payment or compensation. This definition applies to any hiring contract, whether written, oral or implied. Under TUCA, most services individuals perform for wages are taxable unless TWC deems otherwise. If you are uncertain of whether your employees’ wages are subject to TUCA, contact the TWC Tax Department.
The three essential elements to the definition of employment are service, wages, and direction and control.
Service
The agreement under which a person agrees to perform a service is known as a contract of hire. Employment begins when service starts and continues until it is discontinued by discharge, death, resignation, or an alteration in the terms of the employment agreement.
Wages
A person who receives wages or non-cash compensation for services is said to be employed. An example of non-cash compensation is room and board for live-in domestic help. Taxes are calculated on the basis of wages paid for employment. Unemployment benefits to claimants are determined by wages received from liable employers.
Direction & Control
If the employer controls the manner and means by which the work is performed or has the right to do so, the person performing the work is employed. For more information regarding direction and control, see Employment Status – A Comparative Approach.
Under the common law test, a worker is an employee if the purchaser of that worker's service has the right to direct or control the worker, both as to the final results and as to the details of when, where, and how the work is done. Control need not actually be exercised; rather, if the service recipient has the right to control, employment may be shown.
Depending upon the type of business and the services performed, not all of the twenty common law factors may apply. In addition, the weight assigned to a specific factor may vary depending upon the facts of the case.
If an employment relationship exists, it does not matter that the employee is called something different, such as: agent, contract labor, subcontractor, or independent contractor.
The 20 Common Law Factors are as follows:
Instructions
An Employee receives instructions about when, where and how the work is to be performed.
An Independent Contractor does the job his or her own way with few, if any, instructions as to the details or methods of the work.
Training
Employees are often trained by a more experienced employee or are required to attend meetings or take training courses.
An Independent Contractor uses his or her own methods and thus need not receive training from the purchaser of those services.
Integration
Services of an Employee are usually merged into the firm's overall operation; the firm's success depends on those Employee services.
An Independent Contractor's services are usually separate from the client's business and are not integrated or merged into it.
Services Rendered Personally
An Employee's services must be rendered personally; Employees do not hire their own substitutes or delegate work to them.
A true Independent Contractor is able to assign another to do the job in his or her place and need not perform services personally.
Hiring, Supervising & Paying Helper
An Employee may act as a foreman for the employer but, if so, helpers are paid with the employer's funds.
Independent Contractors select, hire, pay and supervise any helpers used and are responsible for the results of the helpers' labor.
Continuing Relationship
An Employee often continues to work for the same employer month after month or year after year.
An Independent Contractor is usually hired to do one job of limited or indefinite duration and has no expectation of continuing work.
Set Hours of Work
An Employee may work "on call" or during hours and days as set by the employer.
A true Independent Contractor is the master of his or her own time and works the days and hours he or she chooses.
Full Time Required
An Employee ordinarily devotes full-time service to the employer, or the employer may have a priority on the Employee's time.
A true Independent Contractor cannot be required to devote full- time service to one firm exclusively.
Location Where Services Performed
Employment is indicated if the employer has the right to mandate where services are performed.
Independent Contractors ordinarily work where they choose. The workplace may be away from the client's premises.
Order or Sequence Set
An Employee performs services in the order or sequence set by the employer. This shows control by the employer.
A true Independent Contractor is concerned only with the finished product and sets his or her own order or sequence of work.
Oral or Written Reports
An Employee may be required to submit regular oral or written reports about the work in progress.
An Independent Contractor is usually not required to submit regular oral or written reports about the work in progress.
Payment by the Hour, Week or Month
An Employee is typically paid by the employer in regular amounts at stated intervals, such as by the hour or week.
An Independent Contractor is normally paid by the job, either a negotiated flat rate or upon submission of a bid.
Payment of Business & Travel Expense
An Employee's business and travel expenses are either paid directly or reimbursed by the employer.
Independent Contractors normally pay all of their own business and travel expenses without reimbursement.
Furnishing Tools & Equipment
Employees are furnished all necessary tools, materials, and equipment by their employer.
An Independent Contractor ordinarily provides all of the tools and equipment necessary to complete the job.
Significant Investment
An Employee generally has little or no investment in the business. Instead, an Employee is economically dependent on the employer.
True Independent Contractors usually have a substantial financial investment in their independent business.
Realize Profit or Loss
An Employee does not ordinarily realize a profit or loss in the business. Rather, Employees are paid for services rendered.
An Independent Contractor can either realize a profit or suffer a loss depending on the management of expenses and revenues.
Working for More Than One Firm at a Time
An Employee ordinarily works for one employer at a time and may be prohibited from joining a competitor.
An Independent Contractor often works for more than one client or firm at the same time and is not subject to a non-competition rule.
Making Service Available to the Public
An Employee does not make his or her services available to the public except through the employer's company.
An Independent Contractor may advertise, carry business cards, hang out a shingle, or hold a separate business license.
Right to Discharge Without Liability
An Employee can be discharged at any time without liability on the employer's part.
If the work meets the contract terms, an Independent Contractor cannot be fired without liability for breach of contract.
Right to Quit Without Liability
An Employee may quit work at any time without liability on the Employee's part.
An Independent Contractor is legally responsible for job completion and, on quitting, becomes liable for breach of contract.
Examples of services excluded from the definition of employment include those performed:
- In the employ of a church or organization operated primarily for religious purposes
- By the minor child (under age 21), the spouse, or the parents of a sole proprietor (a sole proprietor is a self-employed individual)
- As part of an unemployment work relief or work training program assisted or financed by a federal or state agency
- By a student for a school, college, or university if earning credit for a class while enrolled and regularly attending classes
For a complete list of covered and exempt services, refer to the Texas Unemployment Compensation Act (TUCA).
There are three types of employment:
- Regular employment includes occupations that are not domestic or agricultural, as explained below.
- Domestic employment applies to work in the home such as nannies, gardeners, housekeepers, or personal care staff.
- Agricultural employment includes working with livestock and crop production, or the operation, management, conservation or maintenance of a farm or ranch.
Under any of the following circumstances, employers become liable to pay unemployment taxes if they:
- Have Texas employees and are subject to the Federal Unemployment Tax Act (FUTA) in Texas or another state
- Pay at least $1,500 in total gross wages to employees in any calendar quarter
- Pay at least one employee for a minimum of one hour a day during 20 different weeks in a calendar year
- Have been designated as a 501(c)(3) organization by the IRS and have at least four full- or part-time employees for 20 different weeks in a calendar year
- Acquire or take over, through any means, the total or partial assets of a business, trade, organization, or workforce that is liable for the UI tax
Domestic employment is work performed in a private home, or a chapter of a college fraternity or sorority, as part of the upkeep of the home or chapter, and not on behalf of a home-based business. Generally, work performed in domestic employment includes services performed by nannies, caretakers, companions, housekeepers, gardeners or chauffeurs for family use.
Domestic employees work for individuals or sole proprietors in a home. In some cases, the wages are paid by an entity, such as a trust, formed specifically to pay the domestic employee wages for an individual.
An employer becomes liable to pay unemployment taxes under the Texas Unemployment Compensation Act if the employer pays gross wages of $1,000 or more in a calendar quarter for domestic services. Once a domestic employer becomes liable, they must pay state unemployment taxes on all wages paid as of January 1 of that entire year. When you are required to report for the year, you must report all wages even if the wages are less than $1,000 in a quarter.
Employers become liable to pay unemployment taxes if they take over the domestic employees from another household that is liable for the UI tax (for example, due to divorce or other change in circumstances)
Registration
Register online for a new employer unemployment tax account at Unemployment Tax Registration. The free registration service is quick and easy. When you register online, you will receive a TWC tax account number and confirmation of your registration.
Options for Reporting Wages
TWC Rules 815.107 and 815.109 require all employers to report Unemployment Insurance (UI) wages and to pay their quarterly UI taxes electronically. Employers that do not file and pay electronically may be subject to penalties as prescribed in Sections 213.023 and 213.024 of the Texas Unemployment Compensation Act (TUCA). For additional information about waivers or filing your report or paying your taxes electronically, please contact your nearest tax office.
TWC provides a few options for reporting wages paid to domestic employees and paying taxes:
- Annually rather than quarterly: If you report to TWC only wages for domestic workers, you may elect to report employee wages and pay state unemployment taxes annually rather than quarterly. To choose the annual option, you must submit a Domestic Employer's Annual Election Form (Form C-20) by December 31st for the following year. See Domestic Employer's Annual Election Form (Form C-20) section below.
- Online: Use our Unemployment Tax Services system to report employee wages and pay state unemployment taxes online either quarterly or annually. Registration for Unemployment Tax Services is quick and easy.
- By mail for employers with an approved hardship waiver on file with TWC: We mail a report form to you a month prior to when each quarterly report is due. The forms are pre-printed with your individual account information. Employers return completed forms with their tax payment.
Once a domestic employer elects to report and pay annually, domestic employers do not need to resubmit the election form each year as long as they employ only domestic employees. If you wish to stop reporting annually, you must submit a Domestic Employer's Revocation Form (Form C-20F) by December 31st for the following year. See Domestic Employer's Revocation Form (Form C-20F) section below.
If you elect to report annually, you may be required to provide wage information at any time in order to verify unemployment benefit claimant wages.
Domestic Employment Forms
Employers who only employ domestic employees, such as those who work for individuals in a home, use the forms listed on this page to report domestic employees’ wages.
You must pay unemployment taxes for domestic employee wages quarterly unless you elect to report the wages and pay taxes annually to the Texas Workforce Commission. Only employers who report wages for domestic employees only are eligible to report wages annually.
Domestic Employer’s Annual Election Form (Form C-20)
Domestic employers use the Domestic Employer’s Election Form (Form C-20) to elect to report wages and pay taxes annually. You must submit Form C-20 by December 31st to begin filing annually for the next year. Otherwise, you must continue filing reports and making tax contributions quarterly. Once a domestic employer elects to report and pay annually, domestic employers do not need to resubmit the election form each year as long as they employ only domestic employees.
- Submit a Contact Request to request a Domestic Employer's Annual Election Form (Form C-20). From the Employer menu, select:
- Reason for Contact: Employer Tax Account Actions/Issues
- Issue that you are having: Employer Account Inquiries
Domestic Employer’s Revocation Form (Form C-20F)
To withdraw your election to pay unemployment taxes annually and switch back to quarterly reporting, submit Form C-20F by December 31st for the following year. This revocation request must be signed by the employer or an individual for whom a valid Written Authorization to Represent Employing Unit is on file with TWC.
- Submit a Contact Request to request a Domestic Employer's Revocation Form (Form C-20F). From the Employer menu, select:
- Reason for Contact: Employer Tax Account Actions/Issues
- Issue that you are having: Employer Account Inquiries
Where to Mail Your Form
Mail completed forms, inquiries, or corrections to:
TWC Tax Department
P.O. Box 149037
Austin, TX 78714-9037
Under any of the following circumstances, employers become liable to pay unemployment taxes if they:
- Employ at least three employees for a minimum of one hour a day for 20 weeks in a calendar year
- Pay at least $6,250 in total gross cash wages to employees in a calendar quarter
- Employ a seasonal worker on a truck farm, orchard or vineyard
- Employ a migrant or seasonal workers who works for a farmer, ranch operator or labor agent
- Acquire or take over, through any means, the total or partial assets of the business, trade, organization, or workforce that is liable for the UI tax
Individuals may receive and review information that TWC collects about the individual by emailing open.records@twc.texas.gov or writing to:
TWC Open Records
101 E 15th St, Rm 266
Austin, TX 78778-0001
- Learn how to submit an open records request.