Texas LLC Franchise Tax: Everything You Need to Know in 2026

Your complete guide to the Texas franchise tax—who owes it, how to calculate it, key 2026 thresholds, and how to file on time so your LLC stays in good standing.

Updated March 27, 2026  •  LLC Compass Staff  •  15-minute read

Every year, thousands of Texas LLC owners get blindsided by the franchise tax. Not because the tax itself is complicated—most small businesses don’t owe a penny—but because they didn’t know they still had to file. Skip the filing, and the Texas Comptroller starts a chain of events that can lead to a forfeited business charter, personal liability for company debts, and the loss of your right to sue or defend yourself in a Texas court. That’s the bad news.

The good news? If your Texas LLC brings in less than $2.65 million in annualized total revenue—which covers the vast majority of small and mid-sized businesses—you owe zero franchise tax for the 2026 report year. You just need to file a brief information report by May 15 and you’re done for the year. This guide walks you through every detail: what the franchise tax is, whether you owe it, how to calculate it if you do, and exactly how to file—step by step.

1. What Is the Texas Franchise Tax?

Despite its name, the Texas franchise tax has nothing to do with owning a franchise. It’s a privilege tax—a fee the state charges for the privilege of doing business in Texas as a structured entity. Think of it as Texas’s version of a corporate income tax, though it’s calculated on margin rather than net profit.

Texas has no personal income tax and no traditional corporate income tax. The franchise tax (sometimes called the “margin tax”) fills that gap. It applies at the entity level, meaning the LLC itself is responsible for filing and paying—not the individual members.

The tax is administered by the Texas Comptroller of Public Accounts, and the governing statutes are found in Texas Tax Code Chapter 171. Every entity that is formed in Texas or has nexus in Texas must satisfy annual franchise tax reporting obligations or face administrative consequences.

2. Who Must File (and Who’s Exempt)?

The franchise tax applies broadly. If you formed your business in Texas or you’re a foreign entity registered to do business in Texas, you almost certainly have a filing obligation. Specifically, the following entities are required to file:

• Limited liability companies (LLCs), including single-member and multi-member LLCs
• Corporations, including S-corporations
• Limited partnerships (LPs) and limited liability partnerships (LLPs)
• Professional associations and professional corporations
• Business trusts
• Out-of-state entities registered with the Texas Secretary of State

A handful of entity types are exempt from franchise tax:

• Sole proprietorships—these aren’t separate legal entities and aren’t subject to the tax.
• General partnerships where every partner is a natural person (not an entity).
• Qualifying new veteran-owned businesses—exempt for the first five years. These businesses are also exempt from filing the Public Information Report during that period.
• Certain passive entities and tax-exempt organizations, as defined in Tax Code §171.0003 and §171.063.

Out-of-State LLCs: Do You Have Nexus?

If your LLC is formed outside Texas but does business in the state, you likely have nexus—and a filing obligation. Texas establishes nexus if your entity is physically present in the state, has employees operating in Texas, or derives at least $500,000 in gross receipts from Texas sources. An amendment effective January 7, 2026 clarified that foreign entities using apportionment methods other than gross receipts must still use Texas-sourced gross receipts to determine whether they meet the economic nexus standard.

3. 2026 Rates, Thresholds & Key Numbers

Here are the official numbers for the 2026 report year, as published by the Texas Comptroller:

4. The No-Tax-Due Threshold Explained

For the 2026 report year, the no-tax-due threshold is $2.65 million in annualized total revenue. If your LLC’s total revenue (annualized to a 12-month period) falls at or below this number, you owe zero franchise tax.

This is a significant increase from prior years. The threshold sat at $1.23 million from 2022 through early 2024, then jumped to $2.47 million for the 2024 and 2025 report years after the Texas Legislature passed Senate Bill 3 in 2023. For 2026 and 2027, the Comptroller has raised it again to $2.65 million, adjusting for inflation as required by statute.

It’s important to understand what “annualized total revenue” means. If your LLC operated for the full calendar year, your total revenue is simply the amount reported on your federal income tax return (with certain Texas-specific adjustments). But if your LLC was formed mid-year or has a short reporting period for any reason, you must annualize the revenue—multiply it up to represent a full 12-month period—to see whether you clear the threshold.

5. How to Calculate Your Franchise Tax

If your annualized total revenue exceeds $2.65 million, you’ll need to calculate the tax. You have two paths: the EZ Computation (simpler) and the standard margin calculation (more complex, but potentially lower tax).

Option A: EZ Computation

Available to any entity with annualized total revenue of $20 million or less. You simply multiply your total revenue by 0.331%. There are no deductions to calculate—the rate is lower to compensate. This method is attractive for businesses that don’t have large payroll or cost-of-goods-sold numbers to deduct.

Example: An LLC with $5 million in total revenue that elects the EZ Computation would owe $5,000,000 × 0.00331 = $16,550.

Note that choosing the EZ Computation means you cannot claim any franchise tax credits (such as the R&D credit or the historic structure credit). If your business qualifies for significant credits, run the numbers both ways before deciding.

Option B: Standard Margin Calculation (Long Form)

For entities above $20 million in revenue or those that want to use deductions and credits, the Long Form report calculates taxable margin. You start with total revenue and subtract whichever of the following four methods produces the lowest taxable margin:

1. Total revenue minus cost of goods sold (COGS)
2. Total revenue minus compensation
3. Total revenue minus the $1 million standard deduction
4. 70% of total revenue

After determining your taxable margin, you apportion it to Texas using a single-factor formula: Texas gross receipts divided by total gross receipts everywhere. You then apply the appropriate rate:

• 0.75% for most entities
• 0.375% for entities primarily engaged in retail or wholesale trade

Example: An LLC with $8 million in total revenue and $4 million in COGS (all revenue from Texas) would have a taxable margin of $4 million. At the standard 0.75% rate, that’s $4,000,000 × 0.0075 = $30,000. Under the EZ Computation, the same LLC would owe $8,000,000 × 0.00331 = $26,480. In this case, EZ is cheaper—but the math changes depending on the business.

The Compensation Deduction

If your LLC has significant payroll, the compensation deduction can sharply reduce your taxable margin. For the 2026 report year, the per-person compensation cap is $480,000. This includes W-2 wages, cash compensation paid to officers and owners, net distributive income to natural persons, and employee benefits such as health care and retirement contributions. It does not include payments to 1099 contractors or payroll taxes paid by the employer.

6. Which Report Do You File?

There are three filing scenarios for the 2026 report year. The report you file depends entirely on your annualized total revenue and your entity classification:

The Public Information Report (PIR) is required for most entities. It discloses the names and addresses of officers, directors, managers, and members of the LLC. Passive entities and qualified new veteran-owned businesses are exempt from this requirement.

Some LLCs will use the Ownership Information Report (OIR, Form 05-167) instead of the PIR. The OIR applies to entities that are not corporations, such as LLCs and partnerships, and collects slightly different ownership details.

7. How to File: Step by Step

The Texas Comptroller’s Webfile system is the standard way to file, and it’s free. Here’s the process:

Step 1: Gather your information. You’ll need your 11-digit Texas taxpayer number (found on your original franchise tax notification from the Comptroller), your LLC’s total revenue figures from your federal tax return, and the names and addresses of officers/members for the PIR or OIR.

Step 2: Log in to Webfile. Go to comptroller.texas.gov and navigate to Webfile. If you don’t have a Webfile account yet, you can create one. You’ll need your taxpayer number and a Webfile number (which appears on notices from the Comptroller; you can request it if you don’t have it).

Step 3: Select the correct report. The system will walk you through the options based on your revenue. If you’re under the no-tax-due threshold, you’ll only be completing the PIR or OIR.

Step 4: Complete the forms. Fill in your entity information, revenue data, and ownership details. Double-check everything—the most common filing errors come from incorrect data entry, not technical problems with the system.

Step 5: Submit payment (if applicable). If you owe tax, you can pay by Web EFT (electronic funds transfer) or credit card directly through Webfile. Entities that paid $500,000 or more in franchise tax the previous year must use TEXNET for electronic payment.

Step 6: Save your confirmation. Print or download the confirmation page. This is your proof of filing.

8. Deadlines & Extensions

The annual franchise tax report is due May 15, 2026. Since May 15 falls on a Friday in 2026, there is no weekend extension—the deadline stands as-is.

Filing an Extension

If you need more time, Texas grants an automatic extension to November 15, 2026, but only if you meet one of these conditions by May 15:

• You pay at least 90% of the franchise tax that will be due on your current year’s report, or
• You pay 100% of the franchise tax reported on your prior year’s report (and that report was filed by May 14).

An extension gives you additional time to file. It does not give you additional time to pay. If your extension payment doesn’t meet the threshold, penalties and interest may apply even though you submitted an extension request.

You can request an extension and make the payment through Webfile. If you pay online, do not also submit a paper Extension Request (Form 05-164)—this will create a duplicate filing.

9. Penalties, Forfeiture & Reinstatement

This is where things get serious. The franchise tax penalty structure escalates quickly and the consequences go far beyond fines.

Late Filing and Payment Penalties

Forfeiture: The Real Danger

If your LLC fails to file or pay within 45 days of receiving a delinquency notice from the Comptroller, the Comptroller will forfeit your entity’s right to transact business in Texas. This triggers two immediate consequences:

1. Your LLC cannot sue or initiate legal proceedings in any Texas court.
2. Officers, directors, and managing members become personally liable for debts the LLC incurs during the period of forfeiture—the same way a general partner would be liable for partnership debts.

If the situation is still unresolved 120 days after the forfeiture notice, the Comptroller certifies the entity to the Texas Secretary of State, who then forfeits the LLC’s certificate of formation or registration. At that point, your LLC’s status changes from “active” to “forfeited” in public records.

How to Reinstate a Forfeited LLC

The good news: forfeiture is fixable. There is no time limit on reinstatement for tax forfeitures in Texas. To reinstate your LLC, follow these steps:

1. File all delinquent franchise tax reports with the Comptroller.
2. Pay all outstanding tax, penalties, and interest.
3. Request a Tax Clearance Letter (Form 05-391) from the Comptroller, either by mail or through Webfile.
4. Submit Form 801 (Application for Reinstatement and Request to Set Aside Tax Forfeiture) to the Texas Secretary of State, along with the Tax Clearance Letter and a $75 filing fee.

Once reinstated, the entity’s privileges are restored retroactively—as though the forfeiture never occurred. This has been upheld by Texas courts, including cases where LLCs were reinstated years after the initial forfeiture.

10. What’s New for 2026

Several changes took effect for the 2026 report year that LLC owners should be aware of:

Higher no-tax-due threshold. The threshold increased from $2.47 million (2024–2025) to $2.65 million for 2026 and 2027. This means more businesses will fall below the line and owe nothing.

Higher compensation deduction cap. The per-person cap was adjusted for inflation and is now $480,000 for the 2026 report year, up from prior levels.

Updated total revenue rule (34 TAC § 3.587). Effective March 1, 2026, total revenue for franchise tax purposes is generally based on amounts from your current federal income tax return, rather than being anchored to the 2007 Internal Revenue Code. However, the 2007 IRC standard still applies for excluding foreign dividends and royalties, meaning GILTI and FDII remain included in total revenue.

Full bonus depreciation. Following the federal One Big Beautiful Bill Act signed in July 2025, Texas now allows 100% bonus depreciation for qualifying property acquired after January 19, 2025. The Comptroller determined that the depreciation provision in Texas law is not fixed to the 2007 IRC, enabling businesses to deduct the full cost of qualifying fixed assets on their 2026 report.

Updated nexus rule. As of January 7, 2026, foreign entities that use an apportionment method other than gross receipts must still use Texas-sourced gross receipts to determine whether they meet the state’s economic nexus threshold.

New credits summary schedule. Starting with 2026 reports, entities claiming franchise tax credits must use the updated Form 05-181 (Credits Summary Schedule), replacing the earlier Form 05-160.

11. Frequently Asked Questions

Bottom Line

The Texas franchise tax is one of those obligations that’s easy to handle if you know about it and devastating if you don’t. For the vast majority of Texas LLCs earning under $2.65 million, compliance means filing a single information report once a year by May 15. That’s it—no tax payment, no complex calculations, just a few minutes on Webfile.

For LLCs above the threshold, the math is more involved, but the process is manageable—especially if you compare the EZ Computation and Long Form results before filing. The key is to never ignore the filing obligation. The penalty for forgetting isn’t just a fine; it’s the potential loss of your LLC’s ability to operate and the piercing of the liability shield that made the LLC worth forming in the first place.

Mark May 15 on your calendar. File your report. Keep your LLC in good standing.