Unemployment Insurance Employer Tax Audits

Overview

Each employer must keep employment and payroll records that include all the information in TWC’s Payroll Records Requirements. The records may be inspected and copied by TWC or an authorized representative at any reasonable time and as often as necessary. Section 301.081 of the Texas Unemployment Compensation Act (TUCA) authorizes TWC to conduct a tax audit.

TWC may require reports regarding employees as necessary for the effective administration of the Texas Unemployment Compensation Act (TUCA).

Employment and payroll information TWC obtains may not be published and is not open to public inspection. However, a public employee may access the information as required for the proper administration of their duties, consistent with TWC rule and federal law.

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Purposes of a Tax Audit

The primary objectives of an unemployment insurance employer tax audit are to:

  • Ensure compliance with the taxing provisions of the Texas Unemployment Compensation Act.
  • Foster understanding by employers of the unemployment compensation law.
  • Establish a relationship between TWC and the employer through the distribution of information related to the unemployment insurance program.

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Records Reviewed During an Audit

A field auditor reviews an employer's acknowledged payroll and searches the records for misclassified workers and wages. These records include:

  • All canceled checks, check stubs, check registers and bank statements
  • Time cards
  • Cash vouchers
  • Cash disbursement journal
  • General ledger
  • Individual earnings records
  • Payroll journal
  • TWC quarterly tax reports
  • IRS forms 940 and 941
  • W-3 and W-2s
  • IRS forms 1099, 1096
  • Master vendor files
  • Petty cash
  • Chart of accounts
  • Profit and loss statement
  • Corporate minutes
  • Federal tax returns (1040 Schedule C, 1120, 1120S, etc.)
  • Any other records which may reflect services

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