If your Texas LLC has any W-2 employees, you owe unemployment insurance (UI) tax to the Texas Workforce Commission every quarter — even if you only have one part-time employee. UI tax funds the state's unemployment benefits system, and missing a quarterly deadline triggers penalties and interest on top of your balance. This is separate from federal unemployment tax (FUTA), which you owe to the IRS.

Who owes Texas unemployment insurance tax

Texas UI tax applies to any employer who pays wages to W-2 employees in Texas. That includes:

• LLCs with full-time or part-time employees on payroll
• LLCs that use a leasing company or PEO (the leasing company typically handles UI in that case — confirm with your provider)

What does NOT trigger UI tax:

• Payments to independent contractors (1099 workers)
• Single-member LLCs with no employees (owner draws are not wages for UI purposes)
• LLCs with only owner-members and no separate employees

Common mistake: Many LLC owners confuse contractors and employees. Misclassifying an employee as a contractor does not eliminate your UI tax obligation — it creates back liability if the TWC audits your payroll.

Step 1: Register with the Texas Workforce Commission

Before you file a single quarterly report, your LLC must register as an employer with the TWC. Register online at twc.texas.gov through their Employer Benefits Services portal. You'll receive a TWC tax account number, which you use for all quarterly filings.

Register as soon as you hire your first employee — do not wait until the end of the quarter. Note that each new hire must also be reported to the Texas Attorney General's Office within 20 days — see the Texas new hire reporting requirements guide.

Estimated time: 20–30 minutes to complete online registration.

Step 2: Understand how your UI tax rate is set

Texas UI tax rates are not fixed. The TWC assigns your rate based on your employer experience rating — essentially your claims history.

• New employers: Assigned a standard new employer rate, typically around 2.7% on taxable wages
• Established employers: Rate adjusts annually based on how many former employees filed successful unemployment claims against your account
• Rate range: Rates can fall below 2.7% with a clean claims history, or rise above it with frequent claims

Texas UI tax is calculated only on each employee's taxable wage base — the first portion of wages up to the taxable wage limit set by the TWC each year. Check twc.texas.gov for the current taxable wage base.

Note: Texas has no state income tax, so there is no employee income tax withholding. UI tax is purely an employer obligation — you cannot deduct it from employee paychecks.

Step 3: File your quarterly wage report and pay on time

Your quarterly UI tax consists of two parts filed together:

1. Quarterly wage report — lists each employee, their Social Security number, and wages paid during the quarter
2. UI tax payment — the tax owed based on taxable wages and your assigned rate

Quarterly deadlines:

File and pay through the TWC's Employer Benefits Services portal at twc.texas.gov. You can also file by mail, but online is faster and provides immediate confirmation.

Estimated time: 15–30 minutes per quarter once you have payroll records organized.

Step 4: Keep payroll records accurate

The TWC may audit your payroll records to verify reported wages. Keep the following for at least four years:

• Employee names and Social Security numbers
• Gross wages paid each quarter
• Hire dates and termination dates
• Any documentation supporting independent contractor classifications

Common mistake: Reporting only cash wages and omitting tips, bonuses, or other compensation. All compensation paid to W-2 employees counts toward taxable wages for UI purposes.

For a complete list of Texas LLC compliance obligations — including all employer-related requirements — see the Texas LLC compliance checklist.

Quick reference

FAQ

What happens if I don't comply with Texas UI tax requirements?

Failure to file quarterly wage reports or pay UI taxes results in interest and penalties added to your account balance. The TWC can also conduct audits, assess back taxes for unreported wages, and in serious cases refer delinquent accounts for collection. Unlike franchise tax forfeiture, UI non-compliance does not automatically forfeit your LLC — but the accumulated liability can be significant.

Does a Texas LLC pay state income tax or payroll withholding?

No. Texas has no state income tax, so there is no state income tax withholding from employee paychecks. UI tax is the primary state employer tax. You are still responsible for federal payroll taxes (FICA, FUTA, and federal income tax withholding) through the IRS.

What if my LLC has no employees for an entire quarter?

If you have no employees and paid no wages in a quarter, you generally do not need to file a quarterly wage report for that period. However, if you are a registered Texas employer and paid any wages at any point during the year, verify with the TWC whether a zero-wage report is required — requirements can vary by account type.

How is the Texas UI tax rate different from FUTA?

Texas UI tax is a state obligation paid to the Texas Workforce Commission. FUTA (Federal Unemployment Tax Act) is a separate federal tax paid to the IRS. Employers typically owe both, but a credit against FUTA is available for state UI taxes paid, effectively reducing the combined rate for most employers. See the IRS instructions for Schedule H or Form 940 for the federal credit calculation.

When does my new employer UI rate change?

New employer rates typically apply for the first one to three years until the TWC has enough claims data to calculate an experience rating. Your rate is recalculated annually. You'll receive a rate notice from the TWC each year before January 1 showing your rate for the coming year.

Last verified: 2026-04-27

Sources: Texas Workforce Commission