How Do I Set Up Payroll for My Small Business in Texas?

Answering: How Do I Set Up Payroll for My Small Business in Texas?

Estimated reading time: 6 min read

Setting up payroll for a small business in Texas comes down to four things: get a federal EIN, register with the Texas Workforce Commission within 10 days of becoming liable, set up withholding and deposits correctly, and report new hires on time. Texas has no state income tax, which makes it simpler than most states, but the federal and unemployment-tax pieces still have to be right. AliCat Solutions, a CPA-supervised bookkeeping firm in Cedar Park, sets this up for service businesses across the Austin area.

If you are hiring your first employee, payroll can feel like a wall of forms and deadlines. The good news is that Texas is one of the easier states to run payroll in, and once the structure is in place it largely runs itself. The trick is getting the setup right, because mistakes here surface as penalty notices months later.

The reality is that payroll is less about the software and more about the registrations and the deadlines behind it. Miss the TWC registration window or the quarterly filing dates and the penalties stack up quietly. Get the foundation right and the monthly run is straightforward.

This guide walks through what you need before your first payroll run, your federal obligations, the Texas-specific steps, and how to keep it clean every month.

Key Insights

• Texas has no state income tax, so there is no state withholding to set up, only federal withholding and unemployment tax.
• You must register with the Texas Workforce Commission within 10 days of becoming liable, which happens once you pay $1,500 or more in gross wages in a calendar quarter.
• Texas unemployment tax is paid on the first $9,000 of each employee’s wages per year, at a 2.70% entry rate for new employers in 2026.
• New hires must be reported to the Texas Attorney General’s office within 20 days, while quarterly wage reports go to the TWC by the last day of the month after each quarter.

Keep reading for full details below.

Table of Contents

• What You Need Before Your First Payroll Run
• Your Federal Payroll Obligations
• The Texas-Specific Steps
• Keeping Payroll Clean in Cedar Park and Beyond

What You Need Before Your First Payroll Run

Before a single paycheck goes out, you need a few accounts in place. First is a federal Employer Identification Number from the IRS, which is free and issued immediately online. This is the number every payroll tax filing references. Second, you need to confirm each worker is actually an employee and not a contractor, because misclassifying a worker is one of the most expensive payroll mistakes a small business can make.

You will also want a business bank account that is separate from your personal finances, since payroll and the taxes that come with it should never run through a personal account. If you are still sorting that out, our guide on whether you need a business bank account for a Texas LLC covers it. And if you are unsure whether a worker is staff or a contractor, how to tell a contractor from an employee in Texas walks through the test.

With those in place, you choose a payroll platform. AliCat works in QuickBooks Online with Gusto, ADP, or Paychex for processing, so payroll data flows straight into the books with no double entry.

• Get a federal EIN from the IRS (free, issued instantly online).
• Confirm each worker is an employee, not a contractor, before you put them on payroll.
• Open a separate business bank account so payroll never runs through personal funds.

Your Federal Payroll Obligations

Even in a no-state-income-tax state like Texas, federal payroll rules apply in full. For each employee you withhold federal income tax based on their Form W-4, plus the employee share of Social Security and Medicare, and you match the employer share. Those amounts are deposited to the IRS on a schedule the agency assigns, usually monthly or semi-weekly depending on your payroll size.

You also file Form 941 each quarter to report wages and the taxes withheld, and Form 940 annually for federal unemployment tax. At year end you issue W-2s to employees and file copies with the Social Security Administration. Miss a deposit deadline and the IRS penalty starts at 2% and climbs quickly, which is why the deposit schedule matters more than almost anything else in payroll.

This is the part where a clean monthly process pays for itself. When payroll is reconciled every month, quarterly filings are a formality rather than a scramble.

• Withhold federal income tax, Social Security, and Medicare; match the employer share.
• Deposit federal payroll taxes on your assigned monthly or semi-weekly schedule.
• File Form 941 quarterly, Form 940 annually, and issue W-2s at year end.

The Texas-Specific Steps

Texas adds one main layer: state unemployment tax through the Texas Workforce Commission. You become liable once you pay $1,500 or more in gross wages in a calendar quarter, or have at least one employee in 20 different weeks of a year. Once liable, you must register with the TWC within 10 days using its free online Unemployment Tax Registration service.

Texas unemployment tax is paid on the first $9,000 of each employee’s wages per year. For 2026, new employers pay an entry rate of 2.70%. You file quarterly wage reports and pay electronically, due by the last day of the month following each quarter. Separately, both federal and Texas law require you to report every new or rehired employee within 20 calendar days of their start date, and that report goes to the Texas Office of the Attorney General’s Child Support Division, not the TWC. New-hire reporting and TWC unemployment filings are two different obligations.

None of this is difficult on its own. The risk is in the calendar: the 10-day registration window, the 20-day new hire deadline, and the quarterly filing dates all carry penalties if missed.

• Register with the Texas Workforce Commission within 10 days of becoming liable.
• Pay unemployment tax on the first $9,000 per employee, at the 2.70% new-employer rate for 2026.
• Report new hires to the Texas Attorney General within 20 days; file TWC quarterly wage reports on time.

Keeping Payroll Clean in Cedar Park and Beyond

For a small business owner in Cedar Park, Leander, Round Rock, or anywhere in the greater Austin area, the hard part is not the first setup. It is keeping every deposit, filing, and new-hire report on schedule while you run the business. That is exactly where a missed deadline turns into a penalty notice.

A CPA-supervised process keeps the whole cycle current: payroll runs on schedule, taxes are deposited on time, quarterly reports are filed, and the numbers reconcile into your monthly financials. Whether you are local to Central Texas or a remote business we support through our nationwide virtual CPA work, the goal is the same: payroll that just works, with no surprises.

Set it up right once, keep it current every month, and payroll stops being something you think about.

Frequently Asked Questions

Q: Does Texas have state income tax withholding for payroll?

A: No. Texas has no state income tax, so there is no state income tax withholding to set up. You still handle federal withholding, Social Security and Medicare, and Texas state unemployment tax through the Texas Workforce Commission.

Q: When do I have to register with the Texas Workforce Commission?

A: Within 10 days of becoming liable. You become liable once you pay $1,500 or more in gross wages in a calendar quarter, or have at least one employee in 20 different weeks of a calendar year. Registration is free through the TWC’s online Unemployment Tax Registration service.

Q: How much is Texas unemployment tax?

A: It is paid on the first $9,000 of each employee’s wages per year. For 2026, new employers pay an entry rate of 2.70%, and that rate is adjusted over time based on your experience. Quarterly wage reports and payments are due by the last day of the month after each quarter.

Q: Should I run payroll myself or use a bookkeeper?

A: You can run payroll yourself with the right software, but the registrations and deadlines are where small businesses get caught. A CPA-supervised bookkeeper sets up your EIN, TWC, and deposit schedule correctly, runs payroll on time, and reconciles it into your books so quarterly filings are a formality, not a fire drill.

Want to Learn More?

With nearly three decades of experience and CPA-supervised oversight, AliCat Solutions sets up and runs payroll for service businesses across Cedar Park, Leander, Round Rock, and the greater Austin area, and nationwide through our payroll services.

Citations

• “New Texas Employer Information” (Texas Workforce Commission) — The TWC’s official guidance on becoming a liable employer, the 10-day registration window, the $9,000 taxable wage base, and quarterly reporting requirements for Texas payroll. https://www.twc.texas.gov/programs/unemployment-tax/new-texas-employer-information
• “Depositing and Reporting Employment Taxes” (IRS) — The IRS rules on withholding, depositing federal payroll taxes on the assigned schedule, and filing Form 941 quarterly and Form 940 annually for employers. https://www.irs.gov/businesses/small-businesses-self-employed/depositing-and-reporting-employment-taxes
• “New Hire Reporting” (Office of the Texas Attorney General) — The Texas Attorney General Child Support Division’s official requirement to report new and rehired employees within 20 calendar days, separate from TWC unemployment filings. https://www.texasattorneygeneral.gov/child-support/employers/new-hire-reporting