Houston’s diverse economy supports industries ranging from energy and technology to healthcare, retail, and more. Whether you’re running a growing startup or managing a long-established company, every employer in the city faces one common responsibility: handling payroll taxes correctly when hiring employees.
Whether you’re an established company in the Galleria area or a small business just getting started in Midtown, understanding how much payroll tax is in 2025, how it’s calculated, and your obligations can help you stay compliant and confident. This comprehensive guide is designed to simplify the process for both employers and employees.
What Is Payroll Tax?
Payroll tax refers to the taxes withheld from an employee’s paycheck and the matching contributions made by the employer. These taxes fund major federal programs, including Social Security, Medicare, and unemployment insurance.
Payroll tax is different from income tax. While income tax is based on income brackets and may vary depending on deductions or filing status, payroll taxes are flat-rate contributions calculated directly from wages.
Payroll taxes generally fall into two categories:
- FICA (Federal Insurance Contributions Act):
Shared by employees and employers to fund Social Security and Medicare.
- FUTA (Federal Unemployment Tax Act):
Paid by employers to support the federal unemployment program.
Some states may impose additional taxes such as local income taxes, city surcharges, or higher property taxes.
Also Read: Outsourced Accounting and Bookkeeping Services: A Complete Guide for Small Businesses
How Much Is Payroll Tax in 2025?
In 2025, federal payroll tax rates are as follows:
| Type of Tax | Employee Pays | Employer Pays | Total Rate |
| Social Security | 6.2% (on wages up to $168,600) | 6.2% | 12.4% |
| Medicare | 1.45% | 1.45% | 2.9% |
| Additional Medicare | 0.9% (on income over $200,000) | 0% | 0.9% |
Table 1
As per data collected from the IRS, the payroll tax rate of 7.65% for both employee and employer is applicable (6.2% for Social Security + 1.45% for Medicare each, totalling 15.3%). The standard payroll tax rate is 7.65%, while employers contribute an additional 7.65% for each employee. High earners pay an extra 0.9% in Medicare tax, but only on earnings above $200,000.
State Payroll Taxes Vary
One of the financial advantages of operating in Houston is that Texas does not levy a personal state income tax. This means employers are not required to withhold state income tax from employee wages, reducing payroll administration efforts. However, Texas does impose a State Unemployment Tax (SUTA), which employers must pay. For 2025, here’s what to expect:
- The taxable wage base is $9,000 per employee.
- Rates vary based on your business’s experience rating and range from 0.25%-6.25%.
While Texas employers avoid income tax hassles, they must still calculate and pay SUTA on a quarterly basis. The Texas Workforce Commission oversees this process, and employers in Houston can access online account portals for filing and payment purposes.
Also Read: How Many Pay Periods in a Year?
Employer Payroll Tax Responsibilities
As an employer, you’re responsible for:
- Withholding employee payroll taxes from each paycheck, including Social Security and Medicare.
- Matching employee contributions for Social Security and Medicare.
- Paying FUTA and SUTA taxes entirely out of business funds.
- Filing payroll tax returns quarterly and annually:
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- Form 941 – Reports federal income tax and FICA withholdings quarterly.
- Form 940 – Reports FUTA tax annually.
- Form W-2 – Issued to employees at year-end, showing total earnings and tax withholdings.
- Depositing taxes to the IRS and Texas Workforce Commission on time.
Payroll tax compliance is time-sensitive. Delays or errors can result in steep IRS penalties and interest charges. If you’re running a growing company in Houston, staying on top of these duties is crucial; thus, you must fulfil the employer payroll tax responsibility.
How to Calculate and Manage Payroll Taxes
Payroll tax calculation can be done manually, but most Houston employers rely on software or professional payroll services. Here’s a simplified process to understand the flow:
- Calculate Gross Pay: Total earnings before taxes or deductions.
- Apply Withholding Rates: Deduct the amount of Social Security and Medicare.
- Add Employer Contributions: Match the employee’s FICA amounts, then calculate your share of FUTA and SUTA.
- Record and Remit: Deposit taxes according to IRS and state schedules and keep accurate payroll records.
Tools like QuickBooks, ADP, and Gusto are commonly used by Houston businesses to streamline tax compliance and stay audit-ready. Many also integrate directly with Texas Workforce Commission systems.
Final Thoughts
Understanding how much payroll tax is in 2025, and how to manage it, is key for any Houston business. While Texas offers a relatively simple tax structure, the federal side of payroll tax still demands attention to detail and timely action.
If you’re unsure about your payroll tax process, consider speaking with the Houston Small Business Services team and get all your doubts cleared.
Also Read: Payroll Services For Small Business in Houston
FAQs About Payroll Tax
Q: Who pays payroll tax?
Employees have their share withheld from each paycheck, and employers are responsible for matching contributions and covering unemployment taxes.
Q: Is payroll tax the same as income tax?
Payroll tax is a fixed percentage of wages used to fund Social Security, Medicare, and unemployment programs. Income tax is based on total income and includes deductions and credits.
Q: Can I deduct payroll taxes on business tax returns?
Employers can deduct their portion of payroll taxes, including Social Security, Medicare, FUTA, and SUTA, as business expenses on their federal income tax returns.
