Texas C-Corp Payroll Setup
Establishing payroll for your Texas C-Corporation requires careful setup of federal and state withholding, as well as compliance with the Federal Unemployment Tax Act (FUTA). A correct payroll system ensures timely deposits, accurate reporting, and avoidance of penalties.
Relevant Tax & Code References
- IRC §3402 (Requirement to Withhold Income Tax on Wages)
- Texas Tax Code §151.9014 (State Unemployment Tax—Chapter 204, Texas Unemployment Compensation Act)
- IRC §3301 (FUTA—imposes federal unemployment tax on employers)
- IRC §6656 (Failure to Deposit Penalty for payroll tax deposits)
Relevant Forms & Registrations
- IRS Form W-4 (Employee’s Withholding Certificate)
- IRS Form W-3 (Transmittal of Wage and Tax Statements)
- IRS Form 941 (Quarterly Federal Tax Return)
- IRS Form 940 (Annual FUTA Return)
- Texas Workforce Commission (TWC) Employer Account Number (registration via unclaimedproperty.txsci.gov)
- TWC Form C-1 (New Employer’s Report)
Detailed Example
TechNova Corp. hires its first employee on May 1, 2025, offering $5,000/month salary. Payroll setup:
- Federal Withholding: Employee submits Form W-4; TechNova withholds $600/month based on IRS withholding tables.
- FICA Taxes: Employer and employee each pay 7.65% (Social Security 6.2% up to $160,200 wage base; Medicare 1.45% on all wages) → employer portion = $382.50/month.
- FUTA: 6.0% on first $7,000 wages = $420 annual; after 5.4% credit for state FUTA contributions (if timely), net FUTA rate = 0.6% → $42 annual.
- Texas Unemployment Tax (SUTA): 2.7% on first $9,000 wages = $243 annual.
Step-by-Step Guide to Payroll Setup
- Obtain EIN & TWC Account
- Apply for your Employer Identification Number (EIN) via IRS.gov.
- Register with the Texas Workforce Commission to receive your TWC employer account number; file Form C-1 within 10 days of first payroll.
- Collect Employee Documentation
- Have each employee complete Form W-4 and I-9 for federal verification.
- Determine Withholding & Tax Bases
- Use IRS Publication 15 (Circular E) for federal withholding tables.
- Calculate FICA (6.2% Social Security up to wage base; 1.45% Medicare).
- Compute FUTA on the first $7,000 and SUTA on the first $9,000 of wages.
- Set Deposit Schedule
- Federal withholding & FICA: monthly or semi-weekly per IRS deposit rules (IRC §6302).
- FUTA: deposit quarterly or pay with Form 940 if liability < $500.
- SUTA: deposit per TWC schedule (quarterly).
- Prepare & File Returns
- File Form 941 quarterly for federal withholding and FICA.
- File Form 940 annually by January 31 for FUTA.
- File TWC quarterly wage reports and SUTA deposits.
- Issue W-2s
- By January 31 of the following year, prepare Form W-2 for employees and submit Form W-3 to the SSA.
- Maintain Records
- Keep payroll ledgers, deposit receipts, and tax returns for at least four years (per IRC §6001).
Conclusion
A compliant payroll setup for your Texas C-Corp involves registering with federal and state agencies, accurately calculating withholding and unemployment taxes, adhering to deposit schedules, and timely reporting. Following this checklist safeguards against penalties and ensures smooth operations.
Schedule a Consultation
Optimize your payroll compliance—schedule a meeting with our CPA, Anshul Goyal:
https://calendly.com/anshulcpa/
Disclaimer
This blog provides general guidance on Texas C-Corp payroll setup and does not constitute legal or accounting advice. Always verify current tax rates and deposit requirements with the IRS and Texas Workforce Commission. For personalized payroll implementation and review, consult Anshul Goyal, CPA EA FCA—a licensed CPA in the United States and Enrolled Agent before the IRS—specializing in corporate payroll compliance and tax strategies.
About Our CPA
Anshul Goyal, CPA EA FCA, brings extensive experience in designing payroll systems for corporations of all sizes. He advises on tax withholding, unemployment taxes, and federal deposit schedules to ensure full compliance and efficiency.
Top 5 FAQs
1. When do we deposit federal payroll taxes?
Monthly or semi-weekly, based on your lookback period liability per IRS §6302.
2. How is FUTA credit calculated?
Employers get a 5.4% credit against the 6.0% FUTA rate when state SUTA is paid timely.
3. What if payroll tax liability is under $500?
You may pay FUTA with Form 940 at year-end instead of quarterly deposits.
4. Do we file Form 941 if no employees?
No—only file for quarters when wages and withholdings occurred.
5. How long must payroll records be kept?
At least four years from the date of filing or payment (IRC §6001).