Texas has no state income tax, so your payroll tax is federal only

Texas does not collect state income tax from your paycheck. That means the payroll tax you pay comes entirely from federal withholding — Social Security, Medicare, and federal income tax. Your employer sends those amounts to the U.S. Treasury, not to Texas.

If you work in Texas, you will see three federal deductions on your pay stub: Social Security tax (6.2%), Medicare tax (1.45%), and federal income tax (the percentage varies based on your W-4 form). You will not see a separate Texas state income tax line, because it does not exist.

This is one of nine states with no state income tax. It means your take-home pay is higher than it would be in states that collect both federal and state income tax, assuming the same gross salary.

Key Takeaways

  • Texas collects no state income tax, so you only pay federal payroll tax: Social Security (6.2%), Medicare (1.45%), and federal income tax (varies by W-4).
  • Your employer also pays matching Social Security and Medicare taxes on your behalf, but those do not appear on your pay stub.
  • Federal tax withholding depends on your W-4 form, which you can update anytime if your life circumstances change.
  • Self-employed workers in Texas pay both the employee and employer portions of Social Security and Medicare, totaling 15.3% plus federal income tax.

Federal payroll tax rates that apply in Texas

If you are a W-2 employee, your employer withholds three federal taxes from each paycheck. Social Security tax is 6.2% of your gross wages, up to a wage cap that changes each year (in 2024, the cap is $168,600). Once you earn above that cap in a calendar year, Social Security tax stops being withheld for the rest of that year.

Medicare tax is 1.45% of all your gross wages with no cap — you pay it on every dollar you earn. If your income exceeds certain thresholds ($200,000 for single filers, $250,000 for married filing jointly), an additional 0.9% Medicare tax applies to the amount over the threshold.

Federal income tax withholding is based on the W-4 form you complete when you start a job. The amount depends on your filing status, number of dependents, and other income. You can adjust your W-4 anytime by submitting a new form to your employer's payroll department — you do not need permission or a reason.

What your employer pays on your behalf

Your employer also pays payroll taxes that do not appear on your pay stub. For every employee, the employer pays a matching 6.2% Social Security tax and a matching 1.45% Medicare tax. These are real costs to the employer, but they are separate from what you see withheld from your paycheck.

Self-employed workers in Texas pay both sides. If you are a sole proprietor, contractor, or partner, you pay 12.4% Social Security tax (the employee 6.2% plus the employer 6.2%) and 2.9% Medicare tax (the employee 1.45% plus the employer 1.45%), plus federal income tax. You calculate this on Schedule SE (Self-Employment Tax) when you file your federal return.

How to adjust your federal withholding

If you find that you owe money at tax time or receive a large refund, your W-4 is likely set incorrectly. You can update it anytime without waiting for a new job or a specific date. Download Form W-4 from the IRS website, fill it out, and give it to your payroll department or HR office.

The IRS also provides a withholding calculator on its website (irs.gov) that walks you through the form step by step. If you have multiple jobs, side income, or a spouse who works, the calculator helps you account for all of it so your withholding is closer to what you actually owe.

Changing your W-4 usually takes effect on your next paycheck or within one or two pay periods, depending on your employer's payroll schedule.

Texas-specific payroll considerations

Because Texas has no state income tax, you do not file a separate state tax return and you do not owe state payroll tax. However, Texas does have other taxes that may affect your business or property — sales tax (8.25% state rate, plus local rates), property tax, and business franchise tax — but these are not payroll taxes and do not come out of your paycheck.

If you move to Texas from another state, you stop paying that state's income tax once you establish Texas residency. The IRS considers you a Texas resident for tax purposes once you move your home and primary residence to Texas, even if you still work remotely for an out-of-state employer.

Frequently Asked Questions

Do I pay Texas state income tax if I work remotely for an out-of-state company?

No. Once you are a Texas resident, you do not pay Texas state income tax regardless of where your employer is located. You pay federal tax and any state tax your employer's state requires, but Texas collects nothing. If you are still a resident of another state, you may owe that state's income tax — residency, not job location, determines this.

Why is my federal income tax withholding so high or so low?

Your W-4 form controls federal withholding. If you claimed too many dependents or too much other income, withholding will be low and you may owe at tax time. If you claimed too few, withholding will be high and you may get a large refund. Use the IRS withholding calculator or update your W-4 to adjust it.

Do I pay payroll tax on tips?

Yes. Tips are taxable income. Your employer should withhold federal income tax, Social Security, and Medicare on tips you report. If you receive cash tips you do not report, you are still legally required to pay tax on them when you file your return.

What happens if I reach the Social Security wage cap?

Once you earn above the annual cap ($168,600 in 2024), your employer stops withholding Social Security tax for the rest of that calendar year. Medicare tax continues on all wages with no cap. If you worked for multiple employers in the same year, you may have overpaid Social Security tax — you can claim a credit on your federal return.

Are there any Texas payroll tax deductions I should know about?

Texas does not offer state payroll tax deductions because there is no state income tax. Federal deductions (like traditional 401(k) contributions or health insurance premiums) reduce your federal withholding. Some employers also offer pre-tax benefits like dependent care accounts or transit passes that reduce your taxable wages.