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 (UCF). The UCF is a reserve from which unemployment benefits are paid. Unemployment benefits are paid to eligible workers who are unemployed. 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 (TWC) 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. The first $9,000 paid to an employee by an employer during a calendar year is taxable. Liable employers must file quarterly wage reports and make quarterly tax payments. Reports and payments are due by the last day of the month following the end of the calendar quarter. For detailed information visit: 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. This includes information for domestic employer registration requirements and reporting and paying options.
TUCA defines which employers must report employee wages and pay unemployment taxes. We refer to them as “liable employers.”
There are different criteria outlined in TUCA used to determine an employer's liability. They can be found at Determine Whether You Need to Establish an Unemployment Tax Account.
Employers should register with TWC within 10 days of becoming liable.
Employment is any service performed for payment or compensation. This definition includes any hiring contract, whether written, oral or implied. The three elements to the definition are service, wages, and direction and control.
For more information about types of employment, see Definition & Types of Employment. This page also explains the difference between an employee and an independent contractor.
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.
Wages are the compensation provided to someone in exchange for services or labor. This includes hourly or salary income earned. It also includes back pay, tips, taxable reimbursements, severance pay and commissions.
Federal Unemployment Tax Act, 26 U.S.C. Section 3301 defines wages considered in the calculation of taxes. There are certain exceptions to the term "wages" which are listed in chapter 201 of the TUCA.
To learn which wages are reportable and how to report those wages, visit Reporting & Determining Taxable Wages.