Texas Franchise Tax Guide 2026 — Everything Your Business Needs to Know

1. What Even Is the Texas Franchise Tax?

Let me clear up the number one misconception right away: Texas does not have a state income tax. That's true for individuals. But if you run a business — an LLC, a corporation, a partnership — Texas does have a tax on your business. It's called the franchise tax.

It's not a tax on franchises (as in fast food chains). It's a "privilege tax" — the state's way of saying: "You want the privilege of operating a business in Texas? Cool. Here's the annual fee."

The franchise tax is based on your business's margin (roughly: revenue minus certain costs), not on profit. That's an important distinction we'll come back to. And it's due every year, regardless of whether you actually owe any money.

2. Who Has to File (and Who Doesn't)

Here's the plain-English version:

Entity Type	Must File?	Notes
LLC (single or multi-member)	Yes	Even if taxed as sole prop for federal
Corporation (C-Corp)	Yes	Includes S-Corps
Limited Partnership (LP)	Yes	Files OIR instead of PIR
Limited Liability Partnership (LLP)	Yes	Common for law/accounting firms
Professional Association (PA)	Yes	Medical, legal, etc.
Out-of-state entity doing business in TX	Yes	Nexus = filing obligation
Sole Proprietorship (no LLC)	No	Not a "taxable entity" under TX law
General Partnership (all natural persons)	No	Unless organized as an LP/LLP
Certain passive entities & trusts	Varies	Check with your CPA

3. The No-Tax-Due Threshold — And the Trap

Here's the good news: most small businesses in Texas owe zero franchise tax.

For the 2026 report year (covering your 2025 fiscal year activity), the no-tax-due threshold is $2,650,000 in annualized total revenue. If your total revenue was under that number, you owe no tax.

This is up from the previous threshold of $2,470,000 that applied to 2024 and 2025 report years — more businesses are off the hook this year than last.

Report Year	Covers Activity In	No-Tax-Due Threshold	Due Date
2024–2025	2023–2024	$2,470,000	May 15
2026–2027	2025–2026	$2,650,000	May 15

4. What's New for 2026: IRC Conformity & Bonus Depreciation

This is the biggest franchise tax change in years, and most small business owners haven't heard about it yet. Let me break it down.

The Old Rule

Historically, Texas calculated franchise tax revenue and cost of goods sold (COGS) based on the Internal Revenue Code as it existed on January 1, 2007. That meant any federal tax law changes made in the last 19 years — including bonus depreciation, updated COGS definitions, and new deductions — didn't count for Texas franchise tax purposes.

The New Rule (Effective 2026)

Starting with the 2026 report, Texas will use the current federal IRC for calculating total revenue and COGS — unless a specific Texas statute says otherwise.

In practical terms, this means:

• Bonus depreciation is now allowed. Under the federal "One Big Beautiful Bill Act" of 2025, qualifying assets placed in service on or after January 19, 2025 get 100% bonus depreciation. That now flows through to your Texas COGS calculation.
• Net Depreciation Adjustment (NDA). Because Texas and federal depreciation have diverged for 19 years, there's a one-time transition adjustment available on your 2026 return for each qualifying asset. Any unused NDA carries forward until exhausted.
• GILTI inclusion. For businesses with foreign operations, Global Intangible Low-Taxed Income (GILTI) is now included in total revenue. This primarily affects larger businesses, but it's worth knowing.

5. How the Tax Is Calculated: The Four Margin Methods

If your revenue exceeds the no-tax-due threshold, here's how the math works. Texas doesn't tax your profit — it taxes your margin. And you get to choose the calculation method that gives you the lowest number.

You pick the lowest result from these four options:

Method	Calculation	Best For
70% of Revenue	Total Revenue × 0.70	Quick & simple; service businesses with low COGS/payroll
Revenue − COGS	Total Revenue − Cost of Goods Sold	Manufacturing, retail, restaurants — anyone with material COGS
Revenue − Compensation	Total Revenue − W-2 Wages & Benefits	Professional services with large payroll, small COGS
Revenue − $1M	Total Revenue − $1,000,000	Small businesses with revenue just over the threshold

Then you apply the tax rate to that margin:

Business Type	Tax Rate
Retail & wholesale (primarily selling tangible goods)	0.375%
Everyone else	0.75%
E-Z Computation (revenue ≤ $20M, no deductions)	0.331%

6. Worked Example: A Real Texas Business

Let me walk through a real-world example. Names changed, numbers representative of businesses we work with.

Method	Calculation	Taxable Margin
70% of Revenue	$3,400,000 × 70%	$2,380,000
Revenue − COGS	$3,400,000 − $2,100,000	$1,300,000 ✅
Revenue − Compensation	$3,400,000 − $1,600,000	$1,800,000
Revenue − $1M	$3,400,000 − $1,000,000	$2,400,000

Winner: Revenue − COGS at $1,300,000.

Lone Star Fabrication is a manufacturer (not retail/wholesale), so the rate is 0.75%:

Try It Yourself: Texas Franchise Tax Calculator

Plug in your numbers below. This calculator runs all four margin methods, picks the lowest, and shows you exactly what you'd owe — including how much you save compared to the worst method. No signup, no email capture, just answers.

7. Step-by-Step: How to File

Here's the actual process. It's simpler than most people think — especially if you're below the threshold.

1. Find your Webfile Number. It's an 8-character code starting with "XT" — mailed to you by the Texas Comptroller when you registered your business. Check your original welcome letter. Lost it? Call (800) 252-1381 with your 11-digit Taxpayer ID ready. They'll look it up.
2. Go to Texas Webfile. Navigate to comptroller.texas.gov/taxes/file-pay/about-webfile.php and log in with your XT number and taxpayer ID.
3. Select the 2026 Report Year and choose the appropriate form:
   • PIR or OIR only if revenue is under $2,650,000 (the old No Tax Due Report form was discontinued)
   • EZ Computation Report if revenue is under $20M and you want the simple 0.331% rate
   • Long Form if you want to use the COGS or Compensation margin methods
4. Fill in your financial data. You'll need your total revenue, and — depending on your form — your COGS and/or compensation figures. Pull these from your year-end financial statements or tax return.
5. Complete the Public Information Report (PIR) or Ownership Information Report (OIR). This is a separate form filed at the same time. It asks for your officers, directors, managers, and anyone with 10%+ ownership. More on this below.
6. Review and submit electronically. Double-check entity name, taxpayer ID, and financial figures. Pay any tax owed via the Webfile payment system (ACH or credit card).
7. Save your confirmation. Print or screenshot the confirmation page. You'll want proof of filing if questions come up later.

8. The PIR & OIR: The Report Everyone Forgets

This is the silent killer of Texas business entities.

The Public Information Report (PIR) — Form 05-102 — is required for corporations, LLCs, professional associations, and similar entities. The Ownership Information Report (OIR) — Form 05-167 — is for partnerships, LPs, and LLPs.

It's not complicated. It asks for:

• Your principal office address
• Your registered agent name and address
• Names and addresses of all officers, directors, members, or managers
• Anyone with 10% or more ownership

That's it. Five minutes of work. But if you don't file it, the Comptroller eventually forwards your name to the Secretary of State for forfeiture proceedings.

9. The 7 Mistakes That Get Businesses Forfeited

In my practice, I see the same mistakes over and over. Here's the list — and I guarantee at least one of these will make you think "oh no, that might be me."

10. Already Forfeited? How to Get Reinstated

If you're reading this and thinking "I haven't filed in years" — don't panic, but don't wait either. Here's the reinstatement process:

1. File all delinquent reports. Every missing franchise tax report, PIR, and OIR — for every year you missed. Yes, all of them.
2. Pay all taxes, penalties, and interest owed. Late filing penalty is $50 per late report. Late payment penalties: 5% if paid 1–30 days late, 10% if 30+ days late. Statutory interest begins accruing 61 days after the due date (rate: prime + 1%, set annually by the Comptroller).
3. Request an Account Status Letter (also called a Tax Clearance Letter) from the Texas Comptroller, confirming all debts are settled.
4. File for reinstatement with the Secretary of State. Submit Form 801 along with your Account Status Letter. The filing fee is $75.
5. Wait for processing. Online submissions typically process in 1–3 business days. Paper filings take longer.

11. FAQ — The Questions I Get Every Week

Your 2026 Franchise Tax Calendar

Date	What's Due	Who
May 15, 2026	Franchise Tax Report + PIR/OIR	All taxable entities
May 15, 2026	Extension Request (Form 05-164) + 90% current-year tax or 100% of prior year	If you need more time
Nov 15, 2026	Extended filing deadline	If extension was filed

Bonus: Every Other Filing Your Texas Business Owes in 2026

Franchise tax isn't the only thing on your plate. Here's the complete compliance calendar for Texas small businesses — state and federal — so nothing sneaks up on you.

🏛️ Texas State Obligations

Obligation	Due Date	Who's Affected	Key Details
Franchise Tax + PIR/OIR	May 15	All LLCs, corps, LPs, LLPs, PAs	This entire article. Don't skip the PIR/OIR.
Sales & Use Tax	20th of month/quarter/year	Businesses selling taxable goods or services	Register for a permit through the Comptroller. Filing frequency (monthly/quarterly/annual) is assigned based on volume. Remote sellers: $500K TX sales threshold triggers nexus.
Business Personal Property Rendition	April 15	Businesses owning tangible personal property	Filed with your county appraisal district. Covers equipment, inventory, furniture. Failure to file: 10% penalty on assessed value.
Property Tax Payment	January 31 (following year)	Businesses owning real or personal property	Paid to the county. Delinquent after Jan 31 — penalties and interest start Feb 1.
Texas Unemployment Tax (TWC)	Quarterly (April 30, July 31, Oct 31, Jan 31)	Employers with employees	File quarterly wage reports and pay UI tax to the Texas Workforce Commission. New employers: standard rate ~2.7%.
Texas Workers' Comp (if elected)	Varies by policy	Employers who opt in	Texas doesn't require workers' comp — but if you don't carry it, you lose certain legal defenses. Most employers should carry it.

🇺🇸 Federal Tax Obligations

Obligation	Due Date	Who's Affected	Key Details
Partnership Return (Form 1065)	March 16	Partnerships, multi-member LLCs	Schedules K-1 go to each partner. 6-month extension available (Form 7004).
S-Corp Return (Form 1120-S)	March 16	S-Corporations	K-1s to shareholders. Reasonable compensation for officer-shareholders required.
C-Corp Return (Form 1120)	April 15	C-Corporations	Corporate income tax at 21% flat rate. 6-month extension available.
Individual Return (Form 1040 + Schedule C/SE)	April 15	Sole proprietors, LLC members, S-Corp shareholders	Pass-through income reported here. Self-employment tax: 15.3% on net earnings.
Quarterly Estimated Taxes (1040-ES)	April 15, June 15, Sep 15, Jan 15	Self-employed / pass-through owners	If you expect to owe $1,000+ in tax. Safe harbor: pay 100% of prior year (110% if AGI > $150K).
Payroll Tax Deposits (941)	Monthly or semi-weekly	All employers	Federal withholding + Social Security (6.2%) + Medicare (1.45%). Deposited per IRS schedule.
Quarterly Payroll Report (Form 941)	April 30, July 31, Oct 31, Jan 31	All employers	Report total wages, tips, withholding, FICA. File even if no wages paid that quarter.
Federal Unemployment (Form 940)	January 31 (annual)	Employers who paid $1,500+ in wages or had an employee in 20+ weeks	FUTA tax: 6% on first $7,000 per employee, reduced by state UI credit (usually nets 0.6%).
W-2s / W-3 (Employees)	January 31	All employers	Must be filed with SSA and provided to employees by Jan 31.
1099-NEC (Contractors)	January 31	Businesses paying contractors $600+	File with IRS and provide to contractors. Penalties for non-filing: $60–$310 per form.
Beneficial Ownership Report (BOI)	N/A for US companies	Only foreign-formed entities registered in the US	FinCEN removed BOI reporting for US companies and US persons in March 2025. Domestic LLCs and corporations no longer need to file. Only entities formed under foreign law must report. Monitor fincen.gov/boi for any future changes.