How to pay federal unemployment tax as a Texas business owner

Appreciate the tip. I've been trying to get through to TWC for two days straight and keep hitting a wall. Will look into this for the employer side.

Same frustration here — spent an entire morning on hold. Ended up using that service myself to ask about my tax rate notice and it actually saved me a lot of time.

So the TWC payments I make through the state system actually reduce what I owe the IRS? That's the first time anyone has explained it that simply.

Exactly right. The credit is why staying current on your TWC quarterly reports matters so much — a late TWC payment can cost you that credit and your 940 liability jumps.

Worth adding: the FUTA tax only applies to the first $7,000 you pay each employee in a calendar year. After that, those wages drop out of the calculation entirely.

My prior accountant was handling all of this through some payroll system but I never had visibility into it. Starting from scratch is a lot.

If you're doing payroll manually for eight people that's going to get complicated fast. Even something basic like QuickBooks Payroll or Gusto will generate and track 940 deposits so you're not calculating everything by hand.

That breakdown is really helpful. Two separate systems, two separate payments, different agencies. Got it.

One thing that trips up new employers — your TWC rate notice comes separately each year and applies to that calendar year only. If you're just starting out you're at that 2.70 rate but watch for the notice in January.

Also the $9,000 taxable wage base is the same for both FUTA and TWC in terms of when wages stop counting, which at least makes the math consistent across both filings.

This is exactly what I'm worried about — unknown deadlines that I don't even know to look for.

The IRS does send notices pretty quickly when deposits are late, so at least you find out fast. But better to just set calendar reminders for those four quarterly due dates.

An enrolled agent or a CPA who does small business payroll can review your prior filings too if you're not sure whether everything was submitted correctly before your accountant left.

The 5.4 percent FUTA credit requires that your state taxes be fully paid by the time you file your 940. If you're on an installment plan and there's still an outstanding balance when you file, you could lose part or all of that credit. Worth calling TWC to get clarity on where your account stands before January 31.

That's what I was afraid of. Need to get that balance cleared before year end then.

We've been in business for six years so registration is not the issue. It's the operational stuff I lost when my accountant walked out.

TWC's employer portal has a lot of this documented. The quarterly report filing and payment process is all there once you're logged in to your employer account.

Good to know. I wasn't planning to deduct anything from their checks but it's useful confirmation.

Yeah it's purely employer-side. The withholding that comes out of paychecks is for federal income tax, Social Security, and Medicare — not unemployment.

Social Security and Medicare are FICA, which is a totally different animal. Easy to conflate all these employer obligations when you're new to running payroll.

An overpayment is obviously better than an underpayment but it shows how easy it is to misapply that cap. For an eight-person crew where everyone earns well above $7,000, you hit that ceiling pretty early in the year — sometimes by February.

That's actually reassuring in a way. At least once wages pass the threshold I can stop tracking for FUTA purposes.

Had no idea there was an enrollment step. Flagging that for this week.

The enrollment processing time is usually about a week to ten days for the confirmation PIN to arrive by mail. Definitely get that started now.

You can also call EFTPS directly if the mail confirmation is slow. Their support line is specific to the payment system and they can help verify your enrollment status.

The TWC deadline for the fourth quarter report is actually January 31 as well, same as 940 filing. Stacking them on the same date at least means you can't forget one without being reminded of the other.

Okay so essentially four times a year I need to handle both TWC quarterly filing and FUTA deposits at the same time. That's a manageable mental model.

So deposits through EFTPS are separate from actually filing the 940 form with the IRS. Got it, two steps.

Correct. You can file the 940 electronically through the IRS e-file system or through most payroll software. Some accountants also include it in their year-end package.

I've been resistant to adding another subscription but honestly the peace of mind might be worth it right now.

Made the switch to a payroll service after my own compliance mess and have not looked back. The time savings alone justify the cost for most small businesses.

Even if you go back to an accountant eventually, having the payroll service handle deposits and filings means less risk of something slipping in the transition period.

Right, Texas has not had a credit reduction year in a long time, so this is mostly background knowledge for most Texas employers. But if you ever expand into another state, the rules there could be different.

That's actually much smaller than I was imagining. The state side is the bigger number, good to know.

At the new employer rate of 2.70 percent on $9,000 that's $243 per employee per year for the TWC side. For eight people that's close to $1,944 annually — still manageable but definitely the bigger of the two obligations like you said.

Does that apply if you're trying to get onto a payment plan for back taxes owed to TWC? Or is that a different team?

The employer tax account team handles payment arrangements too. Same line, just explain your situation and they'll route you appropriately.

Used claimyr.com to get through to that employer line earlier this year when I had a rate notice that looked wrong. The agent pulled up my account and confirmed the prior-year charges that drove the rate change. Saved me from filing a protest on a rate that was actually correct.

This is exactly what I needed to hear. Going to spend this afternoon pulling everything together and figuring out what's actually been filed versus what I assumed was being handled.

Prior 940s should be in your IRS online business account if you have one set up. If not, you can request transcripts from the IRS to see what was filed under your EIN.

Good catch. Someone upthread said $9,000 applies to both and that's not right — FUTA is $7,000, TWC is $9,000. Those are two separate limits.

Correct. $7,000 for FUTA, $9,000 for TWC. Keep those separate in your payroll records.

Okay updating my notes. $7,000 federal wage base, $9,000 state wage base. Thanks for the correction.