Hiring your first employee in Texas triggers six compliance requirements you must complete before or immediately after their start date: get a federal EIN, register with the Texas Workforce Commission for unemployment insurance tax, set up federal payroll tax withholding, report the new hire to the Texas Attorney General within 20 days, verify I-9 employment eligibility, and post required workplace notices. Miss any of these and you face penalties, back taxes, and potential personal liability.

Quick reference

Step 1: Get a federal EIN

An Employer Identification Number (EIN) is your business's federal tax ID — you cannot run payroll without one. If you formed your LLC without employees and never obtained an EIN, do this first.

Apply online at IRS.gov. The process takes about 10 minutes and your EIN is issued immediately. There is no fee.

You'll need your EIN to:

• Register with the Texas Workforce Commission (Step 2)
• Set up payroll withholding accounts with the IRS
• Open a business bank account if you haven't already

Common mistake: Some LLC owners get an EIN during formation but forget it when setting up payroll. Dig out the original IRS CP 575 letter or look up your EIN via the IRS Business & Specialty Tax Line at 800-829-4933.

See our guide on getting an EIN for a Texas LLC for more detail.

Estimated time: 10 minutes.

Step 2: Register with the Texas Workforce Commission

Every employer with W-2 employees in Texas must register with the Texas Workforce Commission (TWC) to pay state unemployment insurance (UI) tax. This is a Texas-only obligation — separate from federal unemployment (FUTA).

Register online through the TWC Employer Registration portal. You'll need:

• Your federal EIN
• Your business's legal name and address
• The date you first paid wages in Texas
• The number of employees you expect to hire

Once registered, TWC will assign your employer account number and initial tax rate. New employers are assigned a rate of approximately 2.7% on the first $9,000 of each employee's wages per year (the taxable wage base). After two years, your rate is recalculated based on how many former employees have filed unemployment claims against your account.

After registration, you must file a Quarterly Wage Report and pay any UI tax owed by the last day of the month following each quarter:

Common mistake: Thinking you only need to file when you owe tax. You must file a quarterly wage report every quarter you have employees, even if your UI tax liability for the quarter is zero.

See our detailed guide on Texas unemployment insurance tax for LLCs for instructions on filing the quarterly wage report.

Estimated time: 15–20 minutes to register.

Step 3: Set up federal payroll tax withholding

Texas has no state income tax — which means no state income tax withholding from employee paychecks. That simplifies things. But you still must handle federal obligations:

• Federal income tax withholding: Based on each employee's Form W-4. Use the IRS Tax Withholding Estimator or payroll software to calculate the correct amount.
• FICA taxes (Social Security and Medicare): You withhold 6.2% (Social Security) and 1.45% (Medicare) from each employee's paycheck, and match that amount as the employer. So the total FICA cost per dollar of wages is 15.3% split equally.
• Federal Unemployment Tax (FUTA): 6.0% on the first $7,000 of each employee's wages per year, with a credit of up to 5.4% for paying state UI tax on time — bringing the effective FUTA rate to 0.6% for most Texas employers.

You must deposit federal payroll taxes with the IRS on a schedule determined by your total tax liability (monthly or semi-weekly for most small employers). Register for the IRS Electronic Federal Tax Payment System (EFTPS) to make these deposits.

Common mistake: Treating payroll taxes as business funds you can use temporarily. The IRS calls these "trust fund taxes" — personally collected on behalf of employees — and will hold owners and officers personally liable for unpaid amounts, even after an LLC dissolves.

Estimated time: 1–2 hours to set up payroll software or a payroll service.

Step 4: Report the new hire to Texas

Texas law requires every employer to report each new hire to the Texas Attorney General's New Hire Reporting program within 20 days of the employee's first day. This is required by both federal and Texas state law (for child support enforcement purposes).

You can report online through the Texas AG employer portal. You'll need:

• Employee's name, address, and Social Security Number
• Employee's date of hire (first day of work or first day of paid leave)
• Your EIN and business name

The penalty for filing late is $25 per employee who is not reported on time. If an employer and employee conspire to avoid reporting, the penalty is $500.

Common mistake: Thinking this is optional or only applies to large companies. New hire reporting is required for every employer — including solo LLCs hiring their first employee — regardless of size or industry.

See our step-by-step guide to Texas new hire report online submission for a walkthrough of the AG portal.

Estimated time: 5 minutes per new hire.

Step 5: Complete I-9 employment eligibility verification

Federal law (not Texas-specific) requires you to complete a Form I-9 for every employee hired in the US. You must:

1. Have the employee complete Section 1 of Form I-9 on or before their first day of work
2. Review acceptable identity and work authorization documents (listed on the form's back)
3. Complete Section 2 within 3 business days of the employee's first day
4. Retain the completed I-9 for 3 years after hire date or 1 year after termination, whichever is later

Download Form I-9 from USCIS.gov. You may also use E-Verify — the federal online system that checks documents against government databases — but E-Verify is not mandatory in Texas for most private employers.

Common mistake: Keeping I-9 forms in employee personnel files. I-9 records should be stored separately from other HR documents so they can be produced quickly in an audit without exposing unrelated employee information.

Estimated time: 10–15 minutes per employee.

Step 6: Post required workplace notices

Both federal and Texas law require you to display certain posters in your workplace where employees can easily see them. Required posters include:

• Federal: FLSA minimum wage notice, FMLA (if you have 50+ employees), EEO "Know Your Rights," OSHA job safety poster, EPPA (polygraph)
• Texas: TWC unemployment insurance notice, Texas Payday Law notice, workers' compensation coverage notice (even if you have none — see below)

You can download free federal posters from dol.gov/agencies/whd/employers and free Texas posters from the TWC employer resources page.

Estimated time: 30 minutes to print and post.

Step 7: Decide on workers' compensation

Texas is the only state in the US where private employers are generally not required to carry workers' compensation insurance. You can operate legally without it.

However, if you choose not to carry workers' comp ("non-subscriber" status), you must:

• Notify employees in writing that you do not carry workers' comp before they begin work
• File a Notice of Non-Coverage with the Texas Department of Insurance Division of Workers' Compensation (TDI-DWC)
• Understand that you lose certain legal protections — a non-subscribing employer cannot use the "exclusive remedy" defense if an injured employee sues you

Most employers in higher-risk industries (construction, manufacturing, food service) carry coverage anyway because a single workplace injury lawsuit could be catastrophic.

Common mistake: Assuming you're automatically covered because you formed an LLC. The LLC protects you from business debts — it does not replace insurance. An employee's injury lawsuit can still threaten company assets.

Frequently asked questions

What do I need to do before hiring my first employee in Texas?

Before your first hire, you need a federal EIN, a TWC employer account for UI tax, and a federal payroll withholding setup (EFTPS). You must complete I-9 verification for the employee on or before their start date and submit a new hire report to the Texas AG within 20 days.

Does Texas require workers' compensation insurance?

No. Texas is the only state where workers' compensation is not mandatory for most private employers. You may opt in voluntarily. If you don't carry it, you must notify employees and file a notice with TDI-DWC — and you lose certain legal defenses if an injured employee sues.

How soon after hiring do I need to report a new employee in Texas?

You must file a new hire report with the Texas Attorney General's Office within 20 days of the employee's first day of work. File online at the AG employer portal. Late reports incur a $25 per-employee penalty.

Does Texas have state income tax withholding?

No. Texas has no state income tax, so there is no state income tax to withhold from wages. You still must withhold and remit federal income tax, Social Security, and Medicare taxes to the IRS.

What is the Texas UI tax rate for new employers?

New employers are assigned an initial rate of approximately 2.7% on the first $9,000 of each employee's wages per year. After two years, TWC recalculates your rate based on your claims history. Register with TWC before your first payroll.

Not sure what else your Texas LLC owes?

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Last verified: 2026-05-20

Sources: Texas Workforce Commission, Texas Attorney General New Hire Reporting, IRS Employer Tax Guide (Publication 15), Texas Department of Insurance — Workers' Compensation