Hiring your first employee in Texas
Before your first Texas payroll you need to open separate accounts with separate agencies, register for unemployment insurance, and settle workers compensation. Workers compensation is not required of most private employers in Texas, which is unusual and comes with a serious trade-off explained below. A new employer pays 2.7% unemployment tax on the first $9,000 of each employee's wages in 2026. Texas has no state income tax withholding, which does not mean no payroll obligations.
What do you have to register for before your first payroll?
Texas splits the work across three separate agencies with three separate logins: unemployment tax at the Workforce Commission, new hire reporting at the Attorney General, and sales tax at the Comptroller. There is no single business registration.
Does Texas require income tax withholding?
No. Texas does not tax wage income, so there is no state withholding account to open and nothing to deduct from a paycheck for the state.
Texas has no personal income tax, so there is no state withholding account to open and no state W-4. This is not a policy that could flip next session: voters put the ban in the state constitution in 2019. You still withhold federal income tax plus Social Security and Medicare as normal. The trap is assuming no state income tax means no state payroll registration at all, because you still owe unemployment tax to the Workforce Commission.
What unemployment insurance does Texas charge a new employer?
| New employer rate | 2.7% |
|---|---|
| Taxable wage base | $9,000 per employee per year |
| Maximum first-year cost | About $243 per employee |
| Agency | Texas Workforce Commission (TWC) |
A new Texas employer pays 2.7% on the first $9,000 each employee earns, so roughly $243 per employee in the first year. Texas law sets a new employer's rate at whichever is higher, its industry average or 2.7%, and for 2026 the entry level rate is 2.70% for all groups with no exceptions. You pay it only on the first $9,000 of each employee's wages, so the maximum first-year cost is about $243 per employee. Register within ten days of becoming liable, which happens as soon as you pay $1,500 or more in gross wages in a calendar quarter.
Do you need workers compensation insurance in Texas?
Not for most private employers. Texas is one of the few states where workers compensation is elective rather than mandatory. That is not the same as having no exposure, and the trade-off is the important part.
It is still mandatory for these:
- building or construction employers contracting with a governmental entity, for every employee on that public project
Texas is the one state where workers compensation is optional for most private employers, so there is no employee count that triggers it. Opting out is not free of obligations, and it removes the liability limit that workers compensation gives an employer, so an injured worker can sue you directly for damages. Private clients also often require coverage in their contracts.
File a DWC Form-005 notice of no coverage after your first hire and again every year between February 1 and April 30, post a notice of no coverage in the workplace, give new hires written notice, and if you have five or more employees report work-related injuries with more than one day of lost time.
How quickly must you report a new hire in Texas?
Within 20 calendar days of the date the employee starts earning wages, or twice monthly 12 to 16 days apart if you report electronically. Reports go to the Office of the Attorney General of Texas, Child Support Division.
The rule of thumb is that anyone who fills out a federal W-4 must be reported, and rehires count. Penalties are small but per-employee: $25 each time you fail to report, and $500 if you conspire with an employee to skip or falsify one. Note this goes to the Attorney General, not the Workforce Commission where your unemployment reports go, so it is a separate account and a separate login.
Does Texas have paid family leave or state disability insurance?
No. Texas runs no state paid family leave fund and no state disability insurance, so there is no payroll deduction of that kind and no extra account to open.
Texas has no state paid family leave or state disability insurance program, so there is no payroll deduction for one. Any paid leave you offer is voluntary or contractual.
Do you need a sales tax permit in Texas?
| Permit fee | No fee |
|---|---|
| Register by | A remote seller that crosses the threshold must hold a permit and start collecting by the first day of the fourth month after the month it crossed. No numeric deadline is published for in-state sellers, who simply must hold a permit to sell taxable items. |
| Agency | Texas Comptroller of Public Accounts |
Allow two to three weeks to receive the permit, and note you need a separate permit for each active place of business. The trap once you hold one is that returns become mandatory: you must file every period even with zero taxable sales, and the filing duty continues until you formally close the location and return the permit for cancellation.
Security deposits. You may be required to post a security bond if the Comptroller thinks the tax you will owe is at risk of going unpaid.
Does a marketplace like Amazon or Etsy handle the tax for you?
A marketplace provider must collect and remit tax on everything sold through its marketplace and certify to its sellers that it is doing so. If no certification arrives, keep collecting until it does. The trap for Texas-based sellers is that certification does not release you from holding a permit: a seller located in Texas must still keep its permit and file on time even when every sale goes through a marketplace.
If your sales drop, when can you stop collecting?
Nexus and the duty to collect do not lapse on their own in Texas. A remote seller has to actively file a Remote Seller's Intent to Terminate Use Tax Responsibilities form to end its status, and any permit holder keeps owing returns, even zero-dollar ones, until the permit is closed and returned for cancellation. Treat stopping collection as something you file for, not something that happens automatically.
Does Texas charge a tax on revenue rather than profit?
Texas has no gross receipts tax as such. Its franchise tax, often called the margin tax, is computed from revenue and functions similarly for many businesses, and it is covered on the Texas LLC page rather than here.
Do you have to register your out-of-state company in Texas?
| Foreign LLC | $750 |
|---|---|
| Foreign corporation | $750 |
| Agency | Texas Secretary of State, Corporations Section |
$750 for a foreign for-profit corporation, LLC or limited partnership. Foreign nonprofit corporations pay $25.
Texas is one of the most expensive states in the country for this filing, so budget for it before you take on a Texas location or Texas employees. The expensive mistake is registering late: an entity that has transacted business for more than ninety days without registering owes a late fee equal to the registration fee for each full or partial calendar year it operated unregistered, so three years of activity means $750 in fees plus $2,250 in penalties.
Where these figures come from
Every number on this page was read on Texas's own agency pages, its statute, or a current-year official form, and this record was last reviewed on 2026-09-08. Where a state's explainer page disagreed with its statute or its current form, we followed the statute or the form and said so in the relevant section, because a state's consumer-facing pages are often the last thing updated when a figure changes.
Anything we could not confirm on a primary source is left blank rather than estimated. A missing figure on this page means we could not verify it, not that it is zero.
This is general information, not legal or tax advice. Rules change and your circumstances matter. Confirm anything you are about to act on with the agency named beside it.