Employer's Frequently Asked Tax Questions

What is unemployment insurance tax?

Unemployment Insurance (UI) tax is a tax employers pay to fund unemployment compensation for workers who are unemployed through no fault of their own.

Who must pay unemployment tax?

The Texas Unemployment Compensation Act (TUCA) requires liable Texas employers - including sole proprietorships, partnerships and corporations, and other entities registered with the Secretary of State - to pay UI tax. Employers become liable if they:

Pay at least $1,500 in wages in any one calendar quarter during the current or preceding calendar year, or
Employ at least one worker for part of a day or more each week for 20 weeks during a year, or
Acquires or otherwise receives, through any means, all or part of the organization, trade, business, or workforce of a subject employer, or
Are a 501(c)(3) nonprofit organization (excluding churches and religious organizations) and have at least four employees for part of a day or more each week for 20 weeks, or
Elect to become a subject employer, or
Have Texas employees and are subject to the Federal Unemployment Tax Act (FUTA), or
Are a state political subdivision or instrumentality, or
Pay $1,000 or more wages one calendar quarter for domestic service, or
Employs three (3) employees for 20 weeks in a calendar year or pays $6,250.00 in cash wages in a calendar quarter, or
Employ a seasonal worker on a truck farm, orchard or vineyard, or
Employ a migrant or a seasonal worker(s) who works for a farmer, ranch operator, or labor agent who employs migrant worker(s).

How is the money to pay unemployment insurance benefits financed?

The money used to pay Texas unemployment insurance benefits comes from Texas employers. Taxes collected are deposited in a trust fund used to pay unemployment insurance benefits. The money to administer the unemployment insurance program comes from a federal tax created by the Federal Unemployment Tax Act (FUTA).

How does the law define employment?

Employment is any service performed for wages. This definition includes any hiring contract, whether written, oral or implied. TUCA applies to services individuals perform for wages, unless the Texas Workforce Commission (TWC) deems otherwise. If you are uncertain of your TUCA status, contact TWC.

Are there any services specifically excluded from the definition of employment?

The following are examples of services which are excluded from the definition of employment:

Services covered under the Railroad Retirement Act;
Service as a product demonstrator if the individual meets eight criteria as specified in TUCA and has entered into a written contract indicating, both in writing and in fact, that the individual is an independent contractor;
Domestic service in a private home, local college club, or local chapter of a college fraternity or sorority unless the employing unit is a subject employer. Service of a minor child in the employ of his father or mother or service in the employ of the individual's son, daughter, or spouse;
Service performed in the employ of a church or organization operated primarily for religious purposes;
Service performed for a political subdivision as an elected official, member of a legislative body, member of the judiciary, certain employees hired on a temporary basis due to fire and similar emergencies, and certain part-time policy-making or advisory employees;
Service performed in the employ of a foreign government or instrumentality of a foreign government;
Service performed as a student nurse or an intern in the employ of a hospital;
Service performed as an insurance agent or solicitor if remuneration is solely by way of commission;
Service of newsboys under the age of 18;
Service performed in the employ of the United States Government;
Service performed by an ordained minister in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order;
Services performed by an individual receiving rehabilitation of the disabled;
Service performed as part of an unemployment work relief or work training program assisted or financed by a Federal or State agency;
Service performed by an inmate of a custodial or penal institution, whether publicly or privately operated;
Service performed by a student for a school, college, or university if he is enrolled and regularly attending classes;
Certain services performed by a student who is enrolled at a nonprofit or public educational institution which combines academic instruction with work experience;
Service performed by a patient of a hospital for the hospital;
Service performed on a fishing vessel normally having a crew of fewer than 10 if the crew member's reimbursement for services is a share of the catch and the services are determined not to be employment under the Federal Unemployment Tax Act;
Service performed by a sales agent if seller is engaged in the direct sale of a product, and has a written contract whereby substantially all remuneration is to be by commission;
Service performed by a full-time student employed by an organized camp which is operated seven months or less each year. The student must be enrolled full-time at an educational institution or be between terms with a reasonable assurance that he will be enrolled full-time the immediately succeeding academic term;
Service performed by an individual as a real estate broker or salesman as defined in the Real Estate License Act (Vernon's Texas Civil Statutes, Article 657a); who holds a valid real estate license issued by the Texas Real Estate Commission, is being paid substantially by commission, and has a written contract that provides that the individual is not treated as an employee for federal tax purposes with respect to those services;
Service performed by an individual as an instructor of persons licensed or seeking licensure as real estate brokers or salesmen; who is instructing a program or course approved by the Texas Real Estate Commission, and who has a written contract that provides that the individual is not treated as an employee for federal tax purposes with respect to those services;
Service performed by an individual as a delivery or courier, provided the individual meets eight criteria as specified in the Texas Unemployment Compensation Act and enters into a contract indicating that the individual is an independent contractor;
Service performed by an individual at a trade market for a wholesaler, sales representative of a wholesaler or manufacturer of consumer goods (under a written contract) or as a salesman for a wholesaler of consumer goods if such wholesaler or sales representative maintains a place of business at a trade market facility in a city with a population of more than 750,000; and
Service performed by an individual as a landsman engaged primarily in negotiating mineral rights exploration or development, is paid by the job rather than by the hour, and who has a written contract that provides that the individual is an independent contractor.

What constitutes wages?

"Wages" means all remuneration paid for personal services, including the cash value of all remuneration paid in any medium other than cash and gratuities received by any employee in the course of employment to the extent that the gratuities are considered as wages in the computation of taxes under the Federal Unemployment Tax Act, 26 U.S.C. Section 3301 et seq. There are certain exceptions to the term "wages" which are listed in Texas Unemployment Compensation Act (TUCA).

Wages are reported when they are paid rather than when they are earned or accrued.

Do employers withhold UI tax from workers’ wages?

No. Only employers pay the tax.

How does the state compute UI tax?

The first $9,000 a year employers pay each employee is taxable. Employers' tax rate and the taxable wages they pay determine the amount they owe. New employers generally pay at a rate of 2.70%. Employers receive an experience rate after 6 calendar quarters. Their experience rate will vary depending on taxable wages reported and individual claims charged against their account.

When are quarterly tax and tax reports due?

Due Dates for Employers' Quarterly Report and Remittance:

For Wages Paid During	Calendar Qtr. Ends	Due	Must be Filed/Paid By
Jan, Feb, Mar	March 31	April 1	April 30
Apr, May, Jun	June 30	July 1	July 31
Jul, Aug, Sep	September 30	October 1	October 31
Oct, Nov, Dec	December 31	January 1	January 31

Due Dates for Annual Domestic Employer's Report and Remittance:
Quarterly reports and taxes become due on January 1 and are required to be reported and paid no later than January 31 with respect to wages for employment paid in the preceding calendar year. The employer will file their quarterly reports on one combined form which is mailed to the employer in December of each year.

Important Note:
If the past due date for a report or tax payment falls on Saturday, Sunday or a legal holiday on which Commission offices are closed, reports and payments are considered timely if they are received on or before the following business day.

How can I get forms and more information?

Contact your local TWC tax office at: http://www.texasworkforce.org/ui/tax/taxoff.html

Write to: Texas Workforce Commission
101 E. 15th St., Room 514
Austin, TX 78778

Internet: http://www.texasworkforce.org/

E-mail: tax@twc.state.tx.us

Where should I mail tax reports and payments?

Cashier - Texas Workforce Commission
P.O. Box 149037
Austin, TX 78714-9037

PLEASE WRITE YOUR TWC ACCOUNT NUMBER ON YOUR CHECK.

How do I determine if my worker is an employee or an independent contractor?

A worker is an employee if the purchaser of that worker’s service has the right to direct or control the worker, both as to the final results and as to the details of when, where, and how the work is done. Control need not actually be exercised; rather, if the service recipient has the right to control, employment may be shown. For more information, please see the Employment Status – A Comparative Approach (PDF)

I need to file my tax report. What reporting methods are available?

There are several options available for filing tax reports. For a complete listing, visit the Employer’s Quarterly Wage Report Filing Options page.

What are my options for making tax payments?

There are several options available to employers for paying unemployment tax liabilities and other tax related charges. An employer or other entity, including agents paying on behalf of multiple employers, who paid taxes in the preceding fiscal year of $250,000 or more and anticipate to do the same in the current fiscal year, is required to transfer payment amounts by electronic funds transfer. Any employer may voluntarily elect to submit their taxes by electronic funds transfer.

For a complete listing, visit the Payment Options for Unemployment Insurance Tax page.

How may disputed issues involving coverage, taxes, or penalties be resolved?

Commission Rule 815.13 provides in part that "In all situations not specifically provided for in the Act or in the Rules of the Commission, a hearing may, at the discretion of the Commission, be afforded an employing unit, upon its written request, in any case involving tax liability or any question relating to contributions".

I want to access my tax account information. Can I do it online?

Using Unemployment Tax Services, employers can:

Use an existing User ID, if they already have a User ID for another TWC Internet system.
Submit quarterly wage reports (up to 500 employees), using one of three options for providing wage details: file upload, use the last wage report to pre-populate employee information, and manual entry.
Pay unemployment tax (if not required to pay by Electronic Funds Transfer (EFT)).
View unemployment tax account information (e.g., statement of account, chargeback details, tax rate).
Manage unemployment tax account access (grant, update, or remove authority).
Adjust previously filed wage reports.

More details are available at Unemployment Tax Services Features.

What is the new Federal Unemployment Tax rate for Texas employers in 2011?

Effective July 1, 2011 the 0.2% federal surtax included in the Federal Unemployment Tax rate was removed. Because Texas had no outstanding federal loans in January 2011, employers in Texas who timely paid their state unemployment taxes will pay federal unemployment tax at a net FUTA rate of 0.8% on wages paid January 1 to June 30, 2011 and 0.6% on wages paid beginning July 1, 2011.

Employer Responsibility

Who is a subject employer?

An employing unit subject to TUCA is:

An employing unit that pays $1,500.00 in wages in a calendar quarter or has at least one employee during twenty different weeks in a calendar year. The weeks do not have to be consecutive.
An individual or employing unit that acquires or otherwise receives, through any means, all or part of the organization, trade, business, or workforce of another that was an employer subject to this Act at the time of the acquisition.
An employing unit that is a non-profit organization as described under section 501(C)(3) of the IRS code and has four or more employees during twenty different weeks in a calendar year.
An employing unit that is subject to the Federal Unemployment Tax Act (FUTA) and has Texas employees.
An employing unit that elects to become subject.
All political subdivisions and instrumentalities of the State of Texas.

An employing unit that paid cash wages of $1000.00 or more in a calendar quarter for Domestic Services.

An employing unit engaged in Farm and Ranch Labor if:

It employs three (3) employees for twenty weeks in a calendar year or pays $6,250.00 in cash wages in a calendar quarter.
The service is performed on a truck farm, orchard or vineyard and is performed by a seasonal worker.
The worker is a migrant or a seasonal worker(s) who works for a farmer, ranch operator, or labor agent who employs migrant worker(s).

How do I register to get an account number assigned?

Employers must register with the Texas Workforce Commission (TWC) within 10 days of becoming subject to the Texas Unemployment Compensation Act (TUCA). Employers can register online for a new unemployment tax account at Unemployment Tax Registration. The free registration service is quick and easy. When you register online, you will receive a TWC tax account number and confirmation of your registration.

How are employees’ wages reported?

During the month following each calendar quarter (April, July, October, and January), each employer submits an Employer's Quarterly Report. This report must show the total amount of gross wages paid during the quarter and the total amount of Taxable Wages Paid.

The report contains a Wages list on which the employer reports each employee's total gross wages paid for the quarter. Employees are listed by social security number and name, and the amount of total gross wages paid to each employee is shown.

Effective July 1, 2007, employers or other entities, including agents reporting on behalf of multiple employers, with 10 or more employees or have a cumulative total of 10 or more employees in any one calendar quarter, are required to report electronically, including via magnetic media, but all other employers are encouraged to report electronically as well.
The first $9,000 paid to an employee by an employer during a calendar year constitutes "taxable wages". An employer cannot consider wages paid by another employer to the employee in the calendar year in arriving at this limit unless he is a successor to the prior employer, and transfer of compensation experience is applicable.

Following is an example of the amount of wages to be reported by an employer, assuming that he had only one employee in 2010 to whom he paid $4,000.00 per month.

Employer's Quarterly Report

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Total Wages Paid	$12,000.00	$12,000.00	$12,000.00	$12,000.00
Wages over $9,000.00	$3,000.00	$12,000.00	$12,000.00	$12,000.00
Taxable Wages Paid	$9,000.00	.00	.00	.00
Effective Tax Rate	1.00%	1.00%	1.00%	1.00%
Amount of Tax	$90.00	.00	.00	.00

The employer must file reports for the second, third and fourth quarters of 2010 even though he owes no tax. Although reimbursing employers do not pay this tax, they must submit Employer's Quarterly Reports to report wages paid to their employees.

How much tax is to be paid?

The amount of tax to be paid by an employer is computed by multiplying the amount of taxable wages paid during the quarter by the effective tax rate of the employer.

In the example under How Are Employee's Wages Reported?, the employer paid $9,000.00 in taxable wages in the first quarter of 2010 and his effective tax rate was 1.00%. Therefore, the amount of tax to be paid is 1.00% of $9,000.00 or $90.00. No tax is due for the second, third and fourth quarters.

I dissolved a partnership and incorporated. Do I have to report these changes?

Yes. A Status Report (Form C-1) would need to be completed to establish the new account.

The only employment that I have is domestic. Can I elect to report annually?

Domestic employers who wish to elect annual filing must complete and return the Annual Domestic Election Form by December 31 to enable them to begin filing annually for the next year.

Please note that you must have only domestic employment. You are not eligible for annual filing if you have more than one type of employment.
Even if you elect to file annually, you may be required to provide wage information at other times in order to verify claimant wages on an "as needed" basis.
Domestic employers can file the annual report using Unemployment Tax Services or mail in the completed Domestic Employer's Annual Report (Form C-3DOM).

I have employees working in more than one state. To which state should I report their wages?

This is determined by the application of five tests. The tests are similar to provisions of all other states’. They are applied to the employee’s work situation and not the employer. For more information, please see the Location of Services Checklist.

I offer my workers a cafeteria plan. Does this change the way I report to TWC?

The treatment of Cafeteria and 401(k) plans for unemployment insurance reporting purposes differs from state to state. The following discussion details the treatment of each plan in Texas.

A Cafeteria Plan is a formal and written employee benefit plan which is offered to all participants who are employees. Participants may choose among two or more benefits consisting of cash and statutory nontaxable benefits.

Employer contributions used to fund the following benefits are exempt from the state unemployment tax:

Retirement.
Sickness or accidental disability.
Medical or hospital expenses in connection with sickness or accidental disability.
Death.

If employer funds were used to purchase benefits not exempted by 1,2,3, or 4 above (for example, day care, profit sharing or deferred compensation), they are taxable and should be reported to the TWC.

Employee contributions used to fund benefits by salary reduction or deduction from the employee's base pay would be taxable to the TWC, regardless of what they are used to purchase or provide.

A 401(k) Plan is an elective contribution and deferral to a plan containing a qualified cash or deferral compensation arrangement.
Employer contributions into a Section 401(k) trust, which meet the requirements outlined in paragraph (a) of the Internal Revenue Code Section 401 and are exempt from income tax under Section 501(a) of the Code, are not considered taxable wages for state unemployment tax purposes.
In order to be considered exempt for state unemployment tax purposes, the employer must be able to answer yes to the following two questions:

Does the trust meet the requirements of Section 401(a) of the Internal Revenue Code?
Is the trust exempt under Section 501(a) of the Internal Revenue Code?

Employee contributions from a salary reduction or deduction from the employee's base pay are taxable under Texas state unemployment tax laws.

My teenage children work for me in my business. Do I have to pay tax on their wages?

In order for services to be exempt and not included on the TWC employer’s quarterly report, one or more of the following conditions must exist:

Service of an Individual in the employ of the individual's spouse.
Services of a Minor Child (under 21) in the employ of the parents.
Services of Parents in the employ of their sons or daughters.
Services for a political subdivision as an Elected Official.
Services for a Foreign Government.
Services of a Student Nurse or Intern in the employ of a Hospital.
Services as an Insurance Agent or solicitor if remuneration is solely by way of commission.
Services of Newspaper Delivery Persons under the age of 18.
Services of an Ordained Minister in the exercise of his/her ministry.
Services for an Unemployment Work Relief/Training Program assisted or financed by a Federal or State Agency.
Services performed by a Student for a School, College or University if he/she is enrolled and regularly attending classes.
Services performed by Students enrolled at a Non-Profit or Public School which combines academic instruction with work experience.
Services of Direct Sellers.
Services in the employ of a Church.

For a complete list of covered and exempt services, please reference the Texas Unemployment Compensation Act.

I sold my business. How do I notify TWC?

A subject employer who has entirely discontinued employment in Texas may request that the account be suspended. By suspending the account an employer is relieved only of the responsibilities of filing quarterly wage reports for periods during which no wages are paid. Suspending the account does not change the employer's status as a subject employer and does not terminate liability.

After suspending the account an employer is still liable for the payment of taxes due on wages they may pay in the future. If you hire another employee, you should notify TWC so your account can be reactivated. If you want to suspend your account, prepare Notice that Employment or Business Discontinued (Form C-13) and file it with TWC.

I just received a letter from TWC indicating my account has been suspended. Why?

Chances are the Tax department has suspended your account because you have not reported wages for an extended period of time. Every calendar quarter, the Tax department reviews all accounts and suspends those that have not reported wages for the previous eight calendar quarters. This will relieve employers of having to file a 'no wages' quarterly report and prevent the possible accrual of late report penalties. A letter is sent to these employers advising them that their account has been suspended and advises them that if they do resume employment, they should notify the TWC so that their account may be reactivated.

If you need to reopen your account, prepare Amended Status Report (Form C-1AM) and file it with TWC.

What records should I keep to comply with unemployment tax?

Excerpts from TEXAS WORKFORCE COMMISSION RULE 815.106 state:

Each employing unit shall keep true and accurate employment and payroll records, that shall include, the name and correct address of the employing unit, and the name and address of each branch or division or establishment operated, owned, or maintained by the employing unit at different locations in Texas, and the following information for each and every individual performing services for it:

the individual's name, address and social security number;
the dates on which the individual performed services for the employing unit and the state or states in which the services were performed;
the amount of wages paid to the individual for each separate payroll period, date of payment of the wages, and amounts or remuneration paid to the individual for each separate payroll period other than "wages", as defined in the Act; and
whether, during any payroll period the individual worked less than full time, and if so, the hours and dates worked.

These records shall be preserved for Four (4) Years.

If you have questions, please contact the nearest Texas Workforce Commission Tax Office for additional information.

My report is late. What are the penalties?

The worksheet for Computation of Tax/Interest/Penalty Due is provided for your convenience in computing the amount of tax due, and the interest and penalty due if your report (TWC Form C-3) and/or payment is late.

What forms do I need to authorize others to conduct my business with TWC?

Employers subject to the Texas Unemployment Compensation Act may appoint an agent, either an individual or service company, to represent them in all matters before the Commission. This appointment is granted by filing a Written Authorization (Form C-42) which explicitly authorizes the agent to act on the employer's behalf.

An authorized agent of an employing unit has access to all information in the Commission's records regarding that employer. If the employer wishes, they may direct the Commission to mail all correspondence and quarterly tax reports to their agent's address rather than the employer's address.

Acting for the employer, the agent may submit all required reports and contributions under their own signature. Furthermore, the agent may participate in any claimant or tax administrative hearings conducted by TWC regarding the employer's account.

A Written Authorization previously filed and approved by the Commission may be revoked at any time by the employer or his agent. Revocation requires that a Revocation of Written Authorization Form C-43 be filed.

How do I determine my county code?

Visit the List of County Codes page for an index of Texas counties.

What is meant by staff leasing services and who is responsible for reporting leased employees wages?

Staff leasing is an arrangement by which employees of an entity known as a staff leasing services company are assigned to work at a client company. The term does not include: a temporary help service, and independent contractor, or a temporary common worker employer. In general an employer contracts with a leasing company and releases some or all of their employees to the leasing company. The employees are then leased back to the client company, usually to perform the same services for which they have been employed previously. The arrangement is intended to be a long-term or continuing nature, rather than temporary or seasonal in nature.

All staff leasing companies who intend to operate in the State of Texas must be issued a license by the Texas Department of Licensing and Regulation. A properly licensed leasing company will be considered the employer of all leased workers for purposes of the Texas Unemployment Compensation Act. Staff leasing firms will report wages and pay contributions on all workers leased to client companies under the leasing company's Texas Workforce Commission account number. In addition, each leasing company is required to report quarterly on forms prescribed by the Workforce Commission, the name, address, telephone number, federal employer identification number and standard industrial code number of the client company.

Leasing companies whose initial license application is denied or who have an active license revoked, will no longer be considered the employer by the Texas Workforce Commission. Each client of a leasing company without a valid license will be required to report their workers' wages and submit contributions under their own account number at their individually assigned tax rate. If a client's account has been in an "inactive" status for more than three calendar years and the company then resumes employment of their own workers, they will be reassigned a new account number and a tax rate of 2.7%.

I hired domestic help. What is my responsibility?

An employing unit is subject under TUCA if it paid cash wages of $1000.00 or more in a calendar quarter for domestic services. Once subject, domestic employers must pay state unemployment tax on those wages paid during that entire year and following years.

For more information regarding this topic, visit the Domestic Employment page.

I started up a new business. Is it possible to have a TWC Tax representative speak to me and my staff about employer responsibilities?

A TWC Tax Department representative is available to speak to your group about any issues relating to employer responsibilities under the Texas Unemployment Compensation Act. These presentations are made at no charge.

If your group has questions about liability for unemployment tax, the filing of quarterly tax reports or similar issues, please contact the Regional Tax Manager in your local Tax Region for specific arrangements.

A former employee contacted me stating that TWC had notified him that they have a record of wages for his SSN, but the name on the account is not his. How should I advise him?

If TWC has told the employee of a problem with their SSN, it could be due to identity theft, or it may be due to a typing error by an employer, by TWC or even by you. It is the employer's responsibility to correctly report wages and wage information to the TWC. If it is determined that wage information was reported correctly, you might advise the former employee to take additional action. Visit TWC's Simple Mistake or Identity Theft web page for more information.

What is the Texas New Hire program? What is the benefit of reporting?

Federal and State laws require employers to provide, within 20 days of the effective hire date, information about all new or rehired workers to the Employer New Hire Reporting Operations Center (ENHR) in the Texas Office of the Attorney General.

Every time you provide information to the State of Texas New Hire Program about your newly hired or rehired workers, you help state agencies detect and prevent fraud and recover overpayments.

For more information on the benefits of reporting, reporting methods, employer responsibilities, statutes, frequently asked questions and other resources, visit the New Hire Reporting Saves You Money page.

Governmental Employers

What is a reimbursing employer?

A reimbursing employer is an employer who pays to the Fund, in lieu of taxes, an amount equal to the amount of benefits which were paid to his former employees and were attributable to service in the employment of such employer. A reimbursing employer reports wages for his employees and is billed quarterly for the amount of regular benefits and 50% of the extended benefits paid to his former employees during the prior quarter. A reimbursing employer makes no tax payments but is subject to the same penalties as a taxed employer for failure to file reports and/or make payments on time. A governmental employer must pay 100% of extended benefits based on wages earned from the governmental employer.

An election is effective for at least two calendar years and may be terminated after the minimum period by filing with the commission not later than December 1 a written request for termination. The termination is effective January 1 of the following year.

Which employers pay reimbursements instead of taxes?

The following employers pay reimbursements instead of taxes:

A political subdivision of the State which elects to be a reimbursing employer.
A nonprofit organization described in Section 501(c)(3) of the Internal Revenue Code which is exempt from income tax under Section 501(a) of such code and which elects to be a reimbursing employer; and
The State of Texas or any branch or department or instrumentality thereof.
An Indian tribe or any of its instrumentalities.

How are reimbursements paid?

Reimbursements are paid by submitting any banking instrument submitted with the Reimbursable Unemployment Benefits Statement.

An employer or other entity, which paid reimbursements in the preceding state fiscal year of $250,000 or more and anticipates doing the same in the current fiscal year, is required to transfer payment amounts by electronic funds transfer.

What are the advantages and disadvantages of paying reimbursements?

Political subdivisions of the State, federally-recognized Indian tribes, and nonprofit organizations described in Section 501(c)(3) of the Internal Revenue Code which are exempt from income tax under Section 501(a) of such code are entitled under the law to elect to pay reimbursements in lieu of paying taxes. Stated below are some matters to be considered when making the election.

To elect to become a reimbursing employer is comparable to making a decision to discontinue carrying casualty insurance. If no casualty occurs, the cost of the premium has been saved. Likewise, if no former employee is paid unemployment benefits, the organization has saved the cost of the tax but may have to pay the cost of a surety bond as a reimbursable employer which may be required to guarantee payment of reimbursements.

In the example under How Are Employee's Wages Reported?, the employer's total tax is $90.00. If his tax rate later increased to 5.44%, his tax will be $489.60 a year. If his tax rate should decrease to 0.63%, his tax will be $56.70 for a year. Of course, experience rates are subject to change from year to year.

In the same example, if the employer had one employee and elected to pay reimbursements in lieu of taxes, he could be charged in one year as much as $10,790.00 for regular benefits plus the cost of extended benefits. This employer could under certain unique circumstances get a large additional charge in a subsequent benefit year based on wage credits earned by this claimant which were not in the base period of the claimant's first benefit year.

A taxed employer normally knows in December of each year his tax rate for the following year. A reimbursing employer never knows his potential liability and may be required to pay reimbursements more than two years after the individual has been separated from his employment.

A reimbursing employer can protest payment of benefits only if it was the last work the claimant had before filing the claim. This means that a reimbursing employer sometimes has no control over the award of benefits even though it must pay for them. For example: an employee voluntarily quits the reimbursing employer who holds the financial liability on the claim. It must pay for any benefits drawn despite the fact that the employee voluntarily quit employment with the reimbursing employer.

Additionally, a reimbursing employer, unlike a taxed employer, is not protected from charges to his account under certain circumstances if the employee's last separation is the result of a disaster declaration by the president of the United States, the governor, or is the result of a natural disaster, fire, flood, or explosion.

Even if benefits are paid in error, the reimbursing employer still owes the TWC for that money. We cannot credit the employer until we receive the money back from the claimant.

What is a group account?

The Act provides that two or more reimbursing employers may file a joint application with the Commission for the establishment of a group account for the purpose of sharing the costs of benefits paid to former employees of group members.

The members of a group must designate an individual to act as the group representative to make reports for the group, to pay reimbursements, to furnish any bond for the group that may be required, etc.

The advantage in forming such a group is that the risk to a member as to payment of reimbursements may be shared among all members. On the other hand, a member may be required to share in the reimbursements for other members of the group although none of his former employees have been paid benefits.

What tax rates are applicable to governmental employers?

Unemployment Insurance tax rates are computed for taxed governmental employers as a group. All taxed governmental employers have the same rate. Unemployment Insurance tax rates for taxed governmental employers are determined by how much the group has cost the Fund in benefit payments to their ex-employees as compared to the amount of taxes that the group has paid.

The annual contribution rate is expressed as a percentage. The numerator is the amount of all benefits paid, less benefits paid and reimbursed from other sources. If the amount of benefits paid is greater than the contributions paid, the excess benefits paid shall be added. If the amount of benefits paid is less than the contributions paid, the excess contributions shall be deducted.

The denominator is the amount of the total wages paid by employers in the group.

A governmental employer may elect to be a reimbursing employer and repay the Unemployment Compensation Fund, dollar for dollar, for benefits paid to former employees.

Tax Rates

I am a new employer. What tax rate do I use when I file my report?

Newly liable employers who do not acquire compensation experience from a previously liable employer begin with a predetermined tax rate set by the Texas Unemployment Compensation Act. That rate is set by the Texas Legislature and is the greater of the average rate for all employers in the NAICS code to which they belong or 2.70%. This percentage is multiplied by the taxable wages for each quarter to determine the amount of tax due for that quarter. The taxable wage limit is also set by statute and is currently $9000.00 per calendar year, per employee.

These newly liable employers continue with the entry-level rate until they are chargeable throughout four full quarters. Chargeable simply means that they could have been charged with benefits to a former employee, it is not required that a claim be filed. In most cases an employer is not chargeable until their third quarter of paying wages. Employers must pay wages a minimum of 6 quarters to receive an experience rating.

Upon completion of the four chargeable quarters, an interim tax rate is assigned to the new employer and that rate is applicable for the duration of the calendar year that it is assigned. After that, an annual rate is assigned and it is applicable for a full calendar year. Tax rates (interim or annual) are calculated by using the taxable wages (upon which tax has been paid timely) and the amount of charges (if any) paid to former employees.

When is an employer eligible for an experience tax rate?

An employer is eligible for an experience tax rate as soon as his account has been chargeable with benefits throughout four calendar quarters. Since an employer's account is first chargeable when wages can be used in a claim for benefits, an employer will be liable for payment of the tax at his original tax rate for a period of six to eight quarters before he is eligible for an experience rate.

When is an employer’s experience transferred to a successor account?

An employer's experience is transferred to a successor employer when all or part of the organization, trade, business, or workforce of another that was an employer subject to this Act at the time of the acquisition, is acquired; the operation of the organization or business is continued and certain relationships exist between the predecessor and successor as prescribed in TUCA. There is no provision in the law for voluntary total transfer of experience.

A partial transfer of experience is possible when:

A complete and approvable written application is made by both the predecessor and successor, within one year of the date of the acquisition;
The acquired portion of the organization is identifiable and can be segregable; the successor employer must acquire a distinct and separable part of the organization, trade, or business that is capable of operating independently and separately from the predecessor employer; the wages attributable to the acquired part of the organization, trade or business must be separate and distinct from other wages of the predecessor employer and must be solely attributable to services provided on behalf of the acquired part of the organization, trade, or business.
The application is approved by the Commission.

How is an experience tax rate computed?

Annual experience tax rates are computed as of October 1 to be effective for the following calendar year, and notices of the rates are mailed to employers in December.

An employer's benefit ratio is the result obtained by dividing the total benefits paid to his former employees and charged to his account during the preceding 36 months by the employer's total taxable payroll on which taxes have been timely paid for the same 36 months. If the employer has less than 36 months but at least four calendar quarters throughout which his account has been chargeable with benefits, his computation will be based on all calendar quarters immediately preceding the computation date.

The replenishment ratio is the result obtained by dividing the total effectively charged benefits paid during the 12 month period preceding the October 1 rate computation date plus one-half of the ineffectively charged benefits for the same period by the total amount of benefits paid for the same period that are effectively charged. Canceled benefit warrants, repaid benefits which were overpaid, and benefits paid which are repayable from reimbursing employers, the Federal Government, or any other governmental entity are excluded from this computation.

An employer's general tax rate is determined by multiplying his benefit ratio by the statewide replenishment ratio for that year. Following is an example of the computation of an employer's experience tax rate or general rate:

Total amount of benefits paid to former employees of a taxed employer and charged to their account for the period from October 1, 2009 to September 30, 2012 = $400.
Total taxable wages paid by an employer during above period on which the tax was timely paid = $40,000.
The employer's Benefit Ratio is, therefore, $400 ÷ $40,000 = 1.00%
Assume that the statewide Replenishment Ratio for Texas for 2013 tax rates = 1.35%

Then, the employer's general tax rate will be 1.00% x 1.35 = 1.40%. (product is rounded to the next tenth).

TUCA contains a table which provides an easy method to determine the computed general rate. The table shows the various computed general tax rates depending upon the replenishment ratios and the employer's benefit ratio. These rates vary from 0 to 6%.

The floor amount of the Unemployment Compensation Fund is the greater of four hundred million dollars ($400,000,000) or one percent (1%) of total taxable wages for the four calendar quarters ending June 30 preceding the rate computation date. Rate increases based on the floor amounts are computed according to a formula to determine the deficit ratio as prescribed by TUCA.

The deficit ratio is multiplied by the sum of the employer's general tax rate, the replenishment tax rate and deficit tax rate imposed for the calendar year in which the calculation is made to determine the employer's deficit tax rate. The calculated value of the employer's deficit tax rate may not exceed two percent (2%).

The ceiling amount of the Unemployment Compensation Fund is two percent (2%) of total taxable wages for the four calendar quarters ending June 30 preceding the rate computation date. Tax Credits based on the ceiling amounts are computed according to a formula whereby a surplus ratio is obtained using the total amount of taxes due from experience rated employers during the four calendar quarters preceding the computation date as the denominator and the amount by which the fund is above the ceiling as the numerator. The surplus ratio is multiplied by the employer's contributions due for the four calendar quarters ending September 30 preceding the computation date to obtain a credit amount which the employer may apply against his taxes in the ensuing year. The credit may not be applied against delinquent taxes or applied in any manner until the employer has paid any delinquent taxes he owes.

A Replenishment Tax is assessed against all experience rated employers. The tax rate is a percentage obtained by using one-half of the ineffectively charged benefits paid during the twelve months preceding the calculation date as the numerator and total taxable wages for the four quarters ending the preceding June 30 as the denominator.

The employers' Effective Tax Rate is the sum of the general, deficit, replenishment, obligation assessment and employment and training investment assessment tax rates.
The Commission has the authority to levy a separate interest tax on each experience rated employer. The rate may not exceed 0.2%. The proceeds of the interest tax can be used by the Governor solely to pay interest on advances from the Federal Unemployment Trust Fund.

The Commission also has the authority to sell bonds as an alternative to finance shortfalls in the Unemployment Compensation Trust Fund. The purpose of the Bond Obligation Assessment Rate is to collect the amount needed to repay bond obligation due next year. It is calculated by multiplying the sum of the employer’s prior year general tax rate, replenishment tax rate, and deficit tax rate by the product of the obligation assessment ratio and the yield margin (percentage). This rate is included in the employer’s effective tax rate in the years it is assessed.

For current year and historical tax rate information, visit the How Tax Rates are Calculated page.

How can employers reduce their tax rate?

The Voluntary Contribution Election is an option a private employer can exercise by voluntarily paying in all or part of their share of the benefits paid to former employees rather than repaying the benefits through an increase in their unemployment tax rate. An application for voluntary contribution will accompany the annual tax rate notice for accounts that have been charged with unemployment benefits affecting their rate. The election must be made no later than 60 days from the mailing of the Annual Tax Rate Notices. The election may not be revoked once the Commission has recomputed the tax rate.

For more information, visit the Voluntary Contribution Program page.

What is SUTA Dumping?

SUTA (State Unemployment Tax Act) dumping is a new term for an old activity that some employers have used to avoid high UI tax rates. SUTA Dumping compromises experience rating systems by eliminating the incentive for employers to keep employees working and returning claimants to work as soon as possible, and unfairly shifts costs to other employers. In order to maintain the integrity of their experience rating systems and unemployment funds, Federal law required that states enact legislation to deter UI tax rate manipulation schemes, to ensure they are detected early, and to immediately correct the problem when found.

For more information, visit the Texas Legislature Addresses SUTA Dumping page.

What tax rates are applicable to employers other than governmental employers?

Since January 1, 1986, new employers have been assigned an entry level tax rate of either 2.7% or the applicable industry average tax rate, whichever is higher. The industry average was based on the Standard Industrial Classification Code (SIC) prior to January 1, 2002. Since tax year 2002, the industry average is based on the North American Industry Classification System (NAICS). The employer will keep the entry level tax rate for approximately 18 months, and will then be eligible for a tax rate computation.

Employers with North American Industry Classification System (NAICS) Code 115111 (Cotton Ginning) or 115114 ( Post -Harvest Crop Activities) receive the lessor of the computed unemployment insurance tax rate or 5.4%.

Tax Audits

What authorizes the Texas Workforce Commission to audit the records of employers in the State of Texas?

Section 301.081 of the Texas Unemployment Compensation Act.

What are the primary objectives of a tax audit?

The primary objectives are to:

Insure compliance with the taxing provisions of the Texas Unemployment Compensation Act.
Foster understanding by employers of the unemployment compensation law.
Maintain good agency - employer relationships through dissemination of information pertaining to the overall employment security program.

What records are reviewed during an audit?

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

All Cancelled Checks
Time Cards
Cash Vouchers
Cash Disbursement Journal
General Ledger
Individual Earnings Records
Check Register
Payroll Journal
TWC Tax Reports
IRS Form 940
W-3 and W-2s
IRS Forms 1099, 1096 and Master Vendor Files
Petty Cash
Chart of Accounts
Profit and Loss Statement
Corporate Minutes
Federal Tax Return (1040, 1120, 1120S, etc...)
Any other records which may reflect services.

Most Common Reporting Problems

If I do not have any employees for a quarter, do I need to file a quarterly report?

Until TWC is notified that an account is to be placed on an inactive basis, quarterly reports must be timely filed, reflecting no remuneration for such calendar quarter.

How do I calculate the $9000 taxable wage base?

Taxable wages are calculated and tax paid only on the first $9000.00 of wages paid to each employee during the calendar year.

Taxable Wage Example
Computation as follows:
	1st Qtr Total	1st Qtr Taxable	2nd Qtr Total	2nd Qtr Taxable
Employee A	5000.00	5000.00	5000.00	4000.00
Employee B	10000.00	9000.00	10000.00	-0-
LINE 13 Total Wages	15000.00		15000.00
LINE 14 Taxable Wages		14,000.00		4000.00

Employee A did not reach the $9000 annual limit in the first quarter, so the total wages are all taxable. During the second quarter Employee A reached the $9000 annual limit, so only the $4000 it took to reach the limit are taxable. ($5000 + $4000=$9000).

Employee B reached the $9000 annual limit in the first quarter. This employee has taxable wages of $9000 for the first quarter but will have zero taxable wages for the remaining quarters of the year.

How do I correct errors on previously filed reports?

To correct a quarterly wage report that has been submitted, you must file a wage adjustment report. Corrections or adjustments can be filed online (if the report to be adjusted was filed online) or by submitting Adjustment Report forms.

File an online wage adjustment report by logging on to Unemployment Tax Services, select the Report Filing (C3) tab, select the Wage Adjustment Report link, and then select the quarter report period to be adjusted

or

download Adjustment Report (Form C-5) or Wage List Adjustment Schedule (Form C-7) from the Tax Forms and Instructions page.

Can I use wages reported by my predecessor in arriving at the $9000.00 taxable wage base?

Yes. Taxable wages reported by predecessor accounts may be used in arriving at the $9000.00 taxable wage base for the successor account during the same calendar year provided there has been a transfer of compensation experience between accounts.

How do I determine the correct tax rate from the Employer's Quarterly Report?

The effective tax rate is located in Item 4 on the Employer's Quarterly Report (Form C-3). The information can also be found by logging on to Unemployment Tax Services and selecting the Account Info tab, then the Tax Rate Summary link.

I don’t have all the information I need to complete the Wages List detail. Is this a problem?

All elements of the Wages List must be completed to include each employee's social security number, name, and total wage amount paid during the calendar quarter. Including all information will assure that your records are accurately used in assigning claimant benefit wages, determining proper chargebacks, and computing accurate tax rates and quarterly contribution due.

I file reports for multiple worksites every quarter. Why can’t I file separate reports for each worksite?

A single TWC Employer Quarterly Wage Report must be submitted for each calendar quarter regardless of the number of employees or work sites that may exist.
Tax is computed on the taxable wage amount reported for the entire employee roster.
Tax may not be properly computed and credited to the employer tax account where multiple reports are submitted for one calendar quarter.
Accurate and timely reporting and payment are critical to annual tax rate computations and federal offset credit.

Tax Forms

Why is the Employer's Quarterly Report (Form C-3) not a downloadable form?

The TWC Tax Employer's Quarterly Report (Form C-3) is entered onto the TWC database via Optical Character Recognition (OCR) technology. The form's ink color is not visible to the scanner. For this reason, the form is not available for downloading and printing to your local printer.

I have fewer than 10 employees. What forms do I need for reporting?

Employer's Quarterly Report (Form C-3) are provided quarterly only to those registered employers who are not required to file electronically by TWC Rule 815.107(a)(3). If you need replacement forms, please contact one of our local tax offices. If you are not a registered employer and would like to apply for a TWC tax account number, you may register online or download, complete and mail a Employer's Registration Form - Status Report (Form C-1).

The TWC Tax Employer's Quarterly Report (Form C-3) is entered onto the TWC database via Optical Character Recognition (OCR) technology. The form's ink color is not visible to the scanner. For this reason, the form is not available for downloading and printing to your local printer.

When will I receive my quarterly report packet?

Quarterly report packets are mailed around the 15th of the month prior to the due month (March, June, September, December).

How do I order Tax forms?

If you need forms, please contact one of our local tax offices or email us at tax@twc.state.tx.us.

I have domestic (household) employees and I want to report annually. What forms do I need to complete?

Domestic employers who wish to elect annual filing must complete and return the Annual Domestic Election Form by December 31 to enable them to begin filing annually for the next year. Please note that you must have only domestic employment. You are not eligible for annual filing if you have more than one type of employment. Even if you elect to file annually, you may be required to provide wage information at other times in order to verify claimant wages on an "as needed" basis. Domestic employers can file the annual report using Unemployment Tax Services or mail in the completed Form C-3DOM, Domestic Employer's Annual Report.

I dissolved a partnership and incorporated. How do I report these changes?

A Status Report (Form C-1) would need to be completed to establish the new account.

How do I get the federal payroll tax forms?

Federal payroll tax and FUTA forms are available for download at: www.irs.gov.

I no longer have employees. How do I notify TWC of this change?

Notify TWC by completing the Notice that Employment or Business has been Discontinued (Form C-13). This form is used to notify TWC that a business has temporarily suspended or permanently discontinued employment in Texas or has been acquired by a successor.

What forms do I need to authorize others to conduct my business with TWC?

Employers subject to the Texas Unemployment Compensation Act may appoint an agent, either an individual or service company, to represent them in all matters before the Commission. This appointment is granted by filing a Written Authorization (Form C-42) which explicitly authorizes the agent to act on the employer's behalf.

The instrument granting the authority may be a properly completed TWC Written Authorization (Form C-42) with the grantor's notarized signature and the name of the agent appointed. If a durable power of attorney is submitted that authorizes the agent to perform real property transactions, for the form to be valid it must be recorded in the office of the County Clerk of the county in which the property is located.

An authorized agent of an employing unit has access to all information in the Commission's records regarding that employer. If the employer wishes, they may direct the Commission to mail all correspondence and quarterly tax reports to their agent's address rather than the employer's address.
Acting for the employer, the agent may submit all required reports and contributions under their own signature. Furthermore, the agent may participate in any claimant or tax administrative hearings conducted by TWC regarding the employer's account.

A Written Authorization previously filed and approved by the Commission may be revoked at any time by the employer or his agent. Revocation requires that a Revocation of Written Authorization Form C-43 be filed.

I want to elect to pay reimbursements for benefits paid in lieu of paying contributions. What form do I need to complete?

Complete the Election to Pay Reimbursements (Form C-6A) to elect to pay reimbursements. For a newly subject employer, this form must be filed with the Commission within forty-five (45) days from the date the liability notice letter is sent to the employer. For previously established taxed employers not within the above time frame, the application must be received not later than thirty (30) days prior to the commencement of a calendar year. An employer that has elected to be taxed from the inception has to remain taxed for two years before the method of payment can be changed. If you have any questions, contact local TWC Tax Office for assistance.

I underreported my employees wages last quarter. How do I correct the wages?

To correct a quarterly wage report that has been submitted, you must file a wage adjustment report. Corrections or adjustments can be filed online (if the report to be adjusted was filed online) or by submitting Adjustment Report forms.

File an online wage adjustment report by logging on to Unemployment Tax Services, select the Report Filing (C3) tab, select the Wage Adjustment Report link, and then select the quarter report period to be adjusted

or

download Adjustment Report (Form C-5) or Wage List Adjustment Schedule (Form C-7) from the Tax Forms and Instructions page.

Where can I find a listing of all Tax forms that are available for download?

Tax forms available for download are located on the Tax Forms and Instructions page.