Last updated: June 2, 2026
The moment you hire your first employee, your business quietly takes on a new set of legal duties. Not just to the person you hired, but to the government, which now expects you to withhold, match, deposit, and report a stack of payroll taxes on a schedule. It's a fair question to ask whether you really have to follow all of it. The answer is yes, and the penalties for guessing wrong are real. Here's what payroll tax compliance actually requires once you have employees on the books.
Start with the new-hire paperwork
Before you run a single paycheck, two forms need to be on file for every employee.
I-9
The first is Form I-9, Employment Eligibility Verification. The employee completes it and you verify their identity and work authorization by viewing acceptable documents, such as a Social Security card, U.S. passport, or birth certificate. Keep the completed I-9 in your records.
Form W-4
The second is Form W-4, the Employee's Withholding Certificate. This tells you how much federal income tax to withhold from each paycheck, and it should be in effect starting with the employee's first check. If an employee later hands you a new W-4 to change their withholding, you must start using it no later than the first payroll period ending on or after the 30th day after you receive it.
One point of confusion: the W-2 is not a new-hire form. Employees don't fill it out. You issue a W-2 to each employee after the year ends to report what they earned and what you withheld. At hiring, it's the I-9 and the W-4.
FICA: Social Security and Medicare
FICA is the big one, and it has a feature owners don't love: you don't just withhold it from the employee, you match part of it out of your own pocket.
For 2026, Social Security is 6.2% and Medicare is 1.45%. You withhold those from the employee's wages, and you pay a matching 6.2% and 1.45% as the employer. There's also an additional 0.9% Medicare surtax on an employee's wages above $200,000, but that one is withheld from the employee only, with no employer match, starting the pay period their wages cross $200,000.
Social Security has a wage cap that adjusts every year; Medicare does not. Here's how the pieces line up for 2026:
| Tax | Rate (each side) | Who pays | 2026 wage cap |
|---|---|---|---|
| Social Security (OASDI) | 6.2% | Employer and employee | $184,500 |
| Medicare | 1.45% | Employer and employee | No cap |
| Additional Medicare surtax | 0.9% | Employee only, over $200,000 | No cap |
So once an employee's wages hit $184,500 in 2026, you stop withholding and matching Social Security for the rest of the year, but Medicare keeps going on every dollar.
FUTA: the tax only you pay
Federal unemployment tax, or FUTA, is separate from income tax and FICA, and it comes entirely from your funds. Employees don't pay it and nothing is withheld from their checks.
The FUTA rate is 6.0% on the first $7,000 of each employee's wages for the year. Most employers who pay their state unemployment tax on time qualify for a credit of up to 5.4%, which drops the effective FUTA rate to 0.6%. It's a small number per employee, but it's reported and paid on its own schedule, so it can't just be lumped in with everything else.
If it's just you: self-employment tax
If you don't have employees yet and mostly work for yourself, you don't escape these taxes, you just pay them under a different name. Self-employment tax covers your own Social Security and Medicare, and you owe it once your net earnings from self-employment reach $400 for the year. You calculate it on Schedule SE with your Form 1040. It's the same underlying taxes an employer and employee split, except as a self-employed owner you cover both halves yourself.
What this means for Texas employers
Texas takes one thing off your plate: with no state income tax, there's no state income tax withholding to manage. That's a real simplification, but it's the only one.
Every federal rule above applies to a Texas employer in full, and on top of the federal load you also report and pay state unemployment tax to the Texas Workforce Commission. The "no state income tax" headline leads some owners to assume payroll is simple here. It isn't. The federal obligations, the deposit schedules, and the penalties for missing them are identical to any other state.
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The Bottom Line
Hiring employees triggers a set of federal payroll rules you're required to follow, and they aren't optional. Get an I-9 and W-4 on file for every hire, withhold and match FICA (6.2% Social Security up to $184,500 in 2026, plus 1.45% Medicare with no cap), pay FUTA out of your own funds, and report Texas unemployment tax to the state. If it's just you, self-employment tax covers the same ground once you clear $400. None of it is complicated on its own, but the deadlines are strict and the penalties for missing them add up fast.
If you'd rather not track all of this by hand, or you want to be sure your setup is right before it becomes a problem, that's exactly what our team handles in year-round payroll and compliance work for Houston-area employers.
