Introduction
Texas business owners face evolving payroll obligations, particularly with federal and state tax updates, even as the state’s minimum wage remains static. Inexperienced advisors may overlook changes in federal payroll taxes or misapply Texas unemployment tax rates, leading to compliance penalties or missed savings. Are you aligning your payroll practices with the latest Texas and federal tax requirements for 2025?
At Kewal Krishan & Co, our expert tax advisors help Texas clients save an average of $50,000 annually, potentially totaling $775,000 over a decade through precise payroll and tax strategies. This blog examines Texas’s minimum wage and payroll-tax updates for 2025, grounded in Texas Labor Code and Internal Revenue Code (IRC), with detailed examples and compliance steps.
With Texas maintaining no state income tax and the One Big Beautiful Bill Act (OBBBA) enhancing federal incentives, staying compliant ensures cost efficiency. Begin optimizing your payroll strategy today with insights from Our Tax Planning Services.
Understanding Texas Minimum Wage and Payroll-Tax Updates in 2025
Texas adheres to the federal minimum wage under the Fair Labor Standards Act (FLSA), as the Texas Minimum Wage Act (Texas Labor Code § 62) sets no higher rate. Payroll taxes include federal income tax withholding (IRC § 3402), Social Security and Medicare (FICA, IRC § 3101), federal unemployment tax (FUTA, IRC § 3301), and Texas unemployment tax (Texas Workforce Commission, Texas Labor Code § 204).
Key Updates for 2025
- Minimum Wage: Remains $7.25/hour per FLSA, unchanged since 2009, as Texas has no state increase (Texas Labor Code § 62.051). Overtime at 1.5x for over 40 hours/week.
- Federal Payroll Taxes:
- FICA: Social Security 6.2% up to $174,900 wage base (up from $168,600 in 2024, IRC § 3121); Medicare 1.45% with 0.9% additional for high earners (IRC § 3101).
- FUTA: 6% on first $7,000 wages, credit up to 5.4% for state payments, net 0.6% ($42/employee, IRC § 3302).
- Texas Unemployment Tax: Rates range from 0.1% to 6% on first $9,000 wages, averaging 1.25% for 2025 (Texas Labor Code § 204.062). New employers at 2.7% or industry rate. Surcharge adjustments per Texas Workforce Commission (TWC) Bulletin, January 2025.
- OBBBA Impact: No direct payroll tax changes, but enhanced Work Opportunity Tax Credit (WOTC, IRC § 51) increases to $9,600 for certain hires, benefiting Texas employers.
File federal payroll taxes on Form 941 quarterly, Form 940 annually; Texas unemployment tax on TWC quarterly reports. For details, see IRS Publication 15 and TWC Employer Resources.
Detailed Example: Payroll-Tax Compliance and Savings
Consider a Texas retail business with 10 employees, each earning $30,000 annually in 2025 ($300,000 total payroll).
- Minimum Wage Compliance: All earn above $7.25/hour ($15/hour), meeting FLSA (Texas Labor Code § 62.051).
- Federal Payroll Taxes:
- FICA: Social Security: 6.2% × $300,000 = $18,600; Medicare: 1.45% × $300,000 = $4,350. Total $22,950 (matched by employer).
- FUTA: 0.6% × $7,000 × 10 = $420.
- Texas Unemployment Tax: At 1.25% rate, 1.25% × $9,000 × 10 = $1,125.
- WOTC Savings: Hires one veteran, claims $9,600 credit (IRC § 51), reducing federal liability.
- Total Cost: Employer FICA $22,950 + FUTA $420 + Texas $1,125 = $24,495, offset by $9,600 WOTC = $14,895 net.
Misapplying 2.7% unemployment rate for new employers adds $1,170 ($2,295 total), costing $1,170 unnecessarily.
Alternative Scenario
For 20 employees at $15,000 each: FICA $15,300, FUTA $840, Texas $2,250. WOTC for two hires saves $19,200, netting ~$0 tax after credits, highlighting credit importance.
Step-by-Step Guide for Taxpayer Compliance
To comply with Texas minimum wage and payroll-tax updates in 2025, follow these steps:
- Verify Wages: Ensure pay meets $7.25/hour, overtime at 1.5x (Texas Labor Code § 62.051, FLSA).
- Calculate FICA: Withhold 6.2% Social Security (up to $174,900), 1.45% Medicare, match employer share (IRC § 3101).
- Determine FUTA: Apply 0.6% on first $7,000 per employee (IRC § 3302).
- Assess Texas Unemployment: Use TWC-assigned rate (0.1%-6%) on first $9,000; confirm via TWC portal (Texas Labor Code § 204.062).
- Claim WOTC: File Form 8850 within 28 days of hire for eligible employees, claim on Form 5884 (IRC § 51).
- File Returns: Submit Form 941 quarterly, Form 940 annually by January 31, 2026; TWC reports quarterly by last day of month following quarter.
- Pay Taxes: Remit FICA/FUTA via EFTPS; Texas unemployment via TWC online, avoiding 5% penalty (Texas Labor Code § 213.021).
- Retain Records: Keep payroll, W-2s, and credit forms for four years (IRC § 6001).
For payroll optimization, explore Our Business Tax Services.
Common Pitfalls to Avoid
- Wage Non-Compliance: Paying below $7.25/hour risks FLSA penalties (Texas Labor Code § 62.201).
- Incorrect Unemployment Rate: Using default rate without TWC verification inflates costs (Texas Labor Code § 204.062).
- WOTC Deadline Miss: Filing Form 8850 late forfeits credits (IRC § 51).
- Underpayment: Late TWC payments incur penalties/interest (Texas Labor Code § 213.021).
Why Work with a Tax Expert?
Navigating Texas minimum wage and payroll-tax updates in 2025 requires aligning FLSA, IRC, and Texas Labor Code, where errors can trigger audits or lost credits. Generic advisors may miss WOTC opportunities or unemployment rate adjustments, costing thousands. Kewal Krishan & Co specializes in Texas payroll compliance, ensuring accurate filings and maximized credits. Our expertise mitigates risks, as shown in Our Tax Litigation Services.
Conclusion
Texas’s static minimum wage of $7.25/hour and 2025 payroll-tax updates, including federal FICA, FUTA, and Texas unemployment rates, demand diligent compliance to avoid penalties and leverage credits like WOTC. With no state income tax and OBBBA’s enhanced federal incentives, businesses can optimize payroll costs—act now to ensure compliance and savings.
Call to Action
Schedule a consultation with Anshul Goyal, CPA EA FCA, a licensed U.S. CPA and Enrolled Agent, admitted to practice before the IRS, specializing in tax litigation and cross-border tax for U.S. businesses and Indians in the U.S. Contact us at Kewal Krishan & Co to streamline your payroll compliance.
About Our CPA
Anshul Goyal, CPA EA FCA, is a licensed U.S. CPA and Enrolled Agent, representing clients in IRS tax litigation and assisting with cross-border tax compliance for U.S. businesses and Indians in the U.S. His expertise ensures tailored strategies that maximize savings and ensure compliance.
Disclaimer
This blog provides general information for educational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently, and individual circumstances vary. Consult a qualified tax professional before making decisions. The author and firm disclaim liability for actions taken based on this content.
FAQs
1. What’s Texas’s minimum wage in 2025?
$7.25/hour, per FLSA (Texas Labor Code § 62.051).
What’s the FICA wage base?
$174,900 for Social Security, unlimited for Medicare (IRC § 3121).
What’s the Texas unemployment rate?
0.1%-6%, averaging 1.25% on $9,000 wages (Texas Labor Code § 204.062).
How does WOTC work?
Up to $9,600 credit for eligible hires, file Form 8850 (IRC § 51).
When are payroll taxes due?
Form 941 quarterly, Form 940 January 31, 2026; TWC quarterly.