Texas Unemployment 101: What Business Owners and Employees Need to Know

Texas Unemployment 101: What Business Owners and Employees Need to Know

Whether you're a Texas employer navigating your first payroll cycle or a worker who recently lost a job, understanding how unemployment insurance works in Texas can save you time, money, and confusion.

This guide breaks down what you need to know in plain English.

What Is Texas Unemployment Insurance?

Unemployment Insurance (UI) is a safety net that provides temporary income to eligible workers who lose their job through no fault of their own. In Texas, the program is administered by the Texas Workforce Commission (TWC) and funded entirely by employer-paid payroll taxes. Employees do not contribute to this tax.

If you are an employer in Texas, unemployment tax is not optional. You are required to register and report wages once you hire your first employee.

For Employers: Your Responsibilities

If you pay wages to employees in Texas, here is what you need to do.

Register with the TWC

You must create a TWC account as soon as you hire your first employee. You can register online at twc.texas.gov.

Report Wages Quarterly

Texas employers must file wage reports and pay unemployment taxes every quarter. The due dates are:

• April 30 for the first quarter (January through March)

• July 31 for the second quarter (April through June)

• October 31 for the third quarter (July through September)

• January 31 for the fourth quarter (October through December)

Understand Your Tax Rate

When you register with the Texas Workforce Commission (TWC) as a new employer, you will be assigned a standard unemployment tax rate. For most businesses, this starts at 2.7 percent of the first $9,000 in wages paid to each employee per year. This means your maximum annual unemployment tax per employee would be $243 until your rate is adjusted.

Over time, your rate becomes customized based on your business’s experience rating. This rating is calculated using:

• How much you’ve paid in unemployment taxes

• How many former employees have filed unemployment claims

• How much was paid out to those claimants

If your business consistently has few or no claims, your rate can go down. This is considered a “good experience rating.” On the other hand, if you have frequent layoffs or separations that result in claims, your rate may increase.

Example:

Let’s say you own a small HVAC company. If you’ve had the same employees for years and no one has filed for unemployment, your experience rating will likely improve, reducing your rate over time. But if you lay off multiple employees during a slow season and they file claims, the TWC may raise your rate in future years to reflect the increased cost to the system.

Keep Good Records

Maintaining clear and organized records is one of the best ways to protect your business from unemployment claim issues or disputes.

When a former employee files for unemployment, the Texas Workforce Commission (TWC) will notify you and request information about their separation. If your documentation is incomplete or unclear, you could end up with higher unemployment taxes, even if the claim is inaccurate.

Here’s What You Should Be Keeping:

Payroll Records

• Pay stubs or payroll reports

• Payment dates and methods

• Hours worked and wages earned

• Bonus or commission details (if applicable)

Why it matters: These help verify wages during the employee’s base period and prove you paid your unemployment taxes correctly.

Termination or Resignation Letters

• A signed resignation letter (if they quit)

• A termination letter (if they were let go)

• Notes from disciplinary meetings or write-ups, if applicable

• Exit interview summaries, if available

Why it matters: This documentation helps prove why the employee left. If they quit or were terminated for cause (like misconduct), they may not be eligible for benefits — but only if you can prove it.

Job Descriptions and Offer Letters

• Signed job descriptions or employment agreements

• Initial offer letters or onboarding forms

• Any changes in responsibilities or pay throughout employment

Why it matters: This shows the nature of the job, expectations, and that the employee was properly classified.

Work Schedules and Attendance Records

• Clock-in/out records

• Timesheets or scheduling software logs

• Notes on no-shows, tardiness, or unexcused absences

Why it matters: If someone was let go due to repeated no-shows or failure to meet expectations, these records help support your case.

When You Get a Claim Notice:

You’ll receive a notice called a Notice of Application for Unemployment Benefits. You’ll have a limited time (typically 14 days) to respond. If you respond with no documentation, the TWC may side with the employee by default. But if you respond with clear, organized records that tell the story of why the person was separated from the company, you are much more likely to avoid unnecessary benefit charges or rate increases.

For Employees or Former Employees: How It Works

If you have recently lost a W-2 job in Texas, you may qualify for unemployment benefits if all of the following are true:

• You lost your job through no fault of your own, such as a layoff or reduction in hours

• You earned sufficient wages during your base period, which is typically the first four of the last five completed calendar quarters

• You are able to work, available for work, and actively seeking work

Weekly Benefit Amounts

As of 2025, Texas unemployment pays between 71 dollars and 577 dollars per week, depending on your past wages.

Common Questions

Can I get unemployment if I am self-employed or a 1099 contractor?

Not unless you had recent W-2 income. Traditional unemployment benefits do not cover gig workers, freelancers, or independent contractors.

Can an S-Corp owner file?

Only if you were on W-2 payroll and lost that job involuntarily. Owners who do not pay themselves through payroll are not eligible.

What if a former employee files and I disagree?

The Texas Workforce Commission will notify you when a claim is made. You will have the opportunity to respond with documentation. Providing clear records can help prevent inaccurate claims from affecting your tax rate.

How to File for Texas Unemployment (If You Are a Worker)

1. Apply online at ui.texasworkforce.org

2. Create an account and submit your wage history

3. Verify your identity

4. File weekly benefit requests

5. Report your job search activity as required

If approved, benefits are paid by direct deposit or debit card.

Tips for Employers to Avoid Unemployment Issues

• Provide accurate and timely termination documentation

• Respond quickly to all claim notices

• Avoid misclassifying employees as independent contractors

• Work with a payroll provider or bookkeeping professional to stay compliant

Final Thoughts

Unemployment insurance is a vital part of Texas workforce law, but it does not have to be confusing. Whether you are filing your first claim or preparing your next quarterly report, understanding the process puts you in a stronger position to protect yourself and your business.

Need help with Texas payroll compliance or unemployment reporting? Let’s talk.

We help business owners stay organized and above board.