Employer payroll tax rules in 8 sourced rows

Key takeaways

Separate Social Security and Medicare in your labor cost database before you price a labor line.
Read What's New in Publication 15 for the current Social Security wage limit, and do not put a cap on Medicare.
Check the FUTA wage base and whether fourth-quarter FUTA liability plus earlier undeposited amounts is $500 or less.
Record the prior year Texas rate as the sum of 2025 General Tax, Replenishment Tax, and Deficit tax.
Round the Texas unemployment rate to the nearest hundredth, limited to 2%, then multiply the effective tax rate by taxable wages.

The wage base limit is the maximum wage that's subject to the tax for that year, according to Internal Revenue Service. For Social Security, you must refer to "What's New" in Publication 15 for the current wage limit for Social Security wages, according to Internal Revenue Service. This instruction directs estimators to What's New in Publication 15 for the current Social Security wage limit.

Medicare tax operates differently from Social Security tax regarding wage caps. There's no wage base limit for Medicare tax, according to Internal Revenue Service. Consequently, all covered wages are subject to Medicare tax, according to Internal Revenue Service. This means the employer's Medicare liability continues to accrue on every dollar of covered wages paid, without stopping at a threshold.

For your labor cost database, separate the two calculations. See Assembly setup steps for 5 estimating tools. Apply the Social Security rate only to wages up to the current limit found in Publication 15. Apply the Medicare rate to the total covered wages for each employee. Do not apply a cap to the Medicare portion. Update your estimating software's labor cost database with the current FUTA wage base.

A filled reference table of federal and Texas tax rules

The following table consolidates the specific statutory limits, rates, and calculation rules required to price labor accurately. Each row cites the publisher and the exact source text that defines the rule, ensuring you apply the correct figures for your jurisdiction and tax type.

Publisher	Tax/Rule	Statutory Limit/Rate	Source Quote
Internal Revenue Service	FUTA wage base	$7,000	"The $7,000 is often referred to as the federal or FUTA wage base."
Internal Revenue Service	Deposit threshold	$500 or less	"If your FUTA tax liability for the fourth quarter (plus any undeposited amounts from earlier quarters) is $500 or less, you can either deposit the amount or pay the tax with your Form 940 by January 31."
Legal Information Institute	Quarterly credit amount	70 percent	"In the case of an eligible employer, there shall be allowed as a credit against applicable employment taxes for each calendar quarter an amount equal to 70 percent of the qualified wages with respect to each employee of such employer for such calendar quarter."
Legal Information Institute	Credit limit cap	Not exceed tax imposed	"The credit allowed by paragraph (1)(A) shall not exceed the tax imposed by subsection (a) for any calendar quarter, and the credit allowed by paragraph (1)(B) shall not exceed the tax imposed by subsection (b) for any calendar quarter, on the wages paid with respect to the employment of all individuals in the employ of the employer."
Legal Information Institute	Sick leave credit	100 percent	"In the case of an employer, there shall be allowed as a credit against the tax imposed by section 3111(a) or 3221(a) of the Internal Revenue Code of 1986 for each calendar quarter an amount equal to 100 percent of the qualified sick leave wages paid by such employer with respect to such calendar quarter."
Legal Information Institute	Family leave credit	100 percent	"In the case of an employer, there shall be allowed as a credit against the tax imposed by section 3111(a) or 3221(a) of the Internal Revenue Code of 1986 for each calendar quarter an amount equal to 100 percent of the qualified family leave wages paid by such employer with respect to such calendar quarter."
Texas Workforce Commission	RTR assessment detail	0.10 percent	"It is a separate assessment of 0.10 percent of wages paid by an employer."
Texas Workforce Commission	ETIA offset note	Reduced by .10 percent	"Note that this RTR was reduced by .10 percent to offset the Employment and Training Investment Assessment (ETIA) component."

The Internal Revenue Service sets the federal unemployment tax base at $7,000, according to Internal Revenue Service. The Legal Information Institute notes that eligible employers may claim a credit equal to 70 percent of qualified wages each quarter, according to Legal Information Institute. This credit cannot exceed the tax imposed for that quarter, according to Legal Information Institute.

Specific credits for sick and family leave wages are set at 100 percent of the qualified wages paid, according to Legal Information Institute. In Texas, the Replenishment Tax Rate is assessed as 0.10 percent of wages, according to Texas Workforce Commission. The Texas Workforce Commission also notes that this rate was reduced by 0.10 percent to offset the Employment and Training Investment Assessment, according to Texas Workforce Commission.

Use these figures to verify the labor burden in your estimates. Check your current state rate and federal thresholds before applying markup. See Markup and margin rates in 4 estimating tools.

Calculating the effective Texas unemployment rate

The prior year rate is the sum of your 2025 General Tax, Replenishment Tax, and Deficit tax according to Texas Workforce Commission.

The Replenishment Tax Rate (RTR) is a separate assessment of 0.10 percent of wages paid by an employer according to Texas Workforce Commission. Note that this RTR was reduced by .10 percent to offset the Employment and Training Investment Assessment (ETIA) component according to Texas Workforce Commission. This offset means the net impact of the RTR on the total rate calculation accounts for the ETIA deduction.

The 2026 Obligation Assessment Ratio (OA Ratio) is 0.00 percent according to Texas Workforce Commission.

Your effective tax rate multiplied by your taxable wages determines the amount of tax you pay according to Texas Workforce Commission.

Rounding and final liability checks for your estimate

When you calculate the specific unemployment tax rate for a Texas employer, the resulting value is rounded to the nearest hundredth (limited to 2%) according to Texas Workforce Commission. This precision rule applies directly to the calculation of the rate you will use in your labor burden line item. Because the rate is capped at 2%, any calculation that exceeds this limit must be adjusted down to the maximum allowable percentage before you apply it to taxable wages. Ensure your estimating software or spreadsheet formula includes this rounding step to match the state’s requirement. See Takeoff scale setup and stated limits for 5 programs.

For federal unemployment tax, the timing of the payment depends on the accumulated liability. If your FUTA tax liability for the fourth quarter (plus any undeposited amounts from earlier quarters) is $500 or less, you can either deposit the amount or pay the tax with your Form 940 by January 31 according to Internal Revenue Service. This threshold allows for flexibility in cash flow management for smaller liabilities. Check your quarterly totals to determine if you fall under this $500 limit.

When to deposit or pay with the return

The Internal Revenue Service provides a specific threshold that determines whether an employer must make a quarterly deposit or can pay the tax when filing the annual return. This rule applies to the aggregate of the fourth-quarter liability and any prior undeposited amounts, not just the fourth quarter in isolation.

For a construction estimator, this distinction matters when projecting cash flow for labor overhead. This allows the firm to retain that cash within the business for an additional period.

Illustrative example of federal and Texas payroll checks

Suppose covered wages for one worker are 7000 in 2026. Medicare still applies to the full 7000 of covered wages, because there is no wage base limit. You treat 7000 as the FUTA wage base. A fourth-quarter FUTA amount of 500, with 0 undeposited from earlier quarters, can be deposited or paid with Form 940. The prior year Texas rate is the sum of the 2025 General Tax, Replenishment Tax, and Deficit tax. The 2026 Obligation Assessment Ratio is 0 percent. A rate that calculates to 2 percent is already at the stated limit and is rounded to the nearest hundredth. Tax is the effective rate multiplied by taxable wages. A credit of 70 percent of qualified wages cannot exceed the tax imposed for that quarter. Sick leave wages and family leave wages each support a credit of 100 percent of those qualified wages.

Do this on your next estimate

Today, open What's New in Publication 15 and write the current Social Security wage limit next to your labor rates. Then line up fourth-quarter FUTA liability plus any undeposited amounts from earlier quarters with the $500 choice to deposit or pay with Form 940. Finish by multiplying your Texas effective tax rate by taxable wages. Write each figure next to the labor line before markup, including the Social Security limit from Publication 15, Medicare on covered wages, and the Texas rate on taxable wages.

You should verify the total undeposited liability before the quarter ends. If the sum approaches the $500 limit, monitor the wage payments closely. This choice is a cash management decision within the bounds of the IRS rule.

How to calculate federal and state payroll taxes for construction estimates

What is the federal FUTA wage base limit?

The $7,000 is often referred to as the federal or FUTA wage base, according to Internal Revenue Service.

Is there a wage base limit for Medicare tax?

Unlike Social Security tax, which stops accruing once an employee's earnings reach the specific base limit, Medicare tax applies to all covered wages. For your estimate, this means you must calculate the Medicare portion of payroll taxes on covered wages, regardless of how high the individual employee's annual earnings become.

How is the prior year Texas rate calculated?

The prior year rate is the sum of your 2025 General Tax, Replenishment Tax, and Deficit tax, according to Texas Workforce Commission.

What is the 2026 Obligation Assessment Ratio in Texas?

The 2026 Obligation Assessment Ratio (OA Ratio) is 0.00 percent, according to Texas Workforce Commission.

How should the resulting tax value be rounded?

The resulting value is rounded to the nearest hundredth (limited to 2%), according to Texas Workforce Commission. This precision rule applies to the final calculated rate before you apply it to taxable wages. Ensure your estimating software or spreadsheet formulas reflect this specific rounding logic to maintain accuracy in your labor burden calculations.