The Texas Franchise Tax for Small Businesses: Thresholds, Rates, and Deadlines
Texas has no personal state income tax — a real advantage for business owners. But most businesses still meet the franchise tax, a “privilege tax” on entities doing business in Texas. Here is who owes it, how it is calculated, and the deadlines that matter.
1. No income tax — but there is a franchise tax
Texas does not tax personal or business income. Instead it levies a franchise (or “margin”) tax on most entities — LLCs, corporations, and partnerships — for the privilege of doing business in the state. Sole proprietorships and certain general partnerships owned entirely by individuals are generally exempt.
2. The no-tax-due threshold: most small businesses owe $0
If your entity’s annualized total revenue is at or below the threshold, you owe no franchise tax. For 2024 and 2025 reports the threshold is $2,470,000; for 2026 and 2027 it rises to $2,650,000. Since 2024, entities at or below the threshold no longer file a franchise tax report — but they must still file an annual Public Information Report (or Ownership Information Report) to keep their registration in good standing.
3. How the tax is calculated (the margin)
Above the threshold, the tax applies to your “taxable margin” — generally the lowest of: total revenue minus cost of goods sold; total revenue minus compensation (capped at $450,000 per person for 2024–2025, $480,000 for 2026–2027); total revenue times 70%; or total revenue minus $1 million. That margin is apportioned to Texas and taxed at the rates below.
4. The rates
| Method | Rate |
|---|---|
| Retail or wholesale | 0.375% |
| All other businesses | 0.75% |
| EZ computation (revenue ≤ $20 million) | 0.331% |
Texas franchise tax rates by method (Texas Comptroller).
5. Deadlines and penalties
Franchise tax reports are due May 15 each year. A report filed late carries a $50 penalty; tax paid 1–30 days late adds 5%, and more than 30 days late adds 10%, with interest starting 61 days after the due date.
The bottom line
Most Acction-sized Texas businesses — under $2.65 million in revenue — owe no franchise tax. But the annual information report is still required, and skipping it can forfeit your registration with the Secretary of State. Know your revenue level and your filing obligation, and file on time even when the tax is zero.
Not sure whether your Texas entity owes franchise tax or just the information report? Email [email protected] or start with our pricing estimator. No pressure at all on our end.
Frequently asked questions
Does Texas have a state income tax?
No. Texas has no personal state income tax. Most businesses instead owe the franchise (margin) tax, and many small businesses owe $0 by falling under the no-tax-due threshold.
My revenue is under the threshold — do I still file anything?
Yes. Since 2024, entities at or below the threshold do not file a franchise tax report, but you must still file a Public Information Report or Ownership Information Report each year to keep your registration active.
When is the report due?
May 15 each year. A late report carries a $50 penalty, and late tax adds 5% (1–30 days) or 10% (over 30 days), plus interest after 61 days.
Related reading
- Dallas–Fort Worth Small-Business Accountant
- The Most Common Small-Business Tax Mistakes
- Small-Business Tax Preparation & Planning
- Estimate your price in about a minute
Sources
Figures verified against the Texas Comptroller of Public Accounts:
- Texas Comptroller — Franchise Tax (rates & thresholds)
- Texas Comptroller — Franchise Tax Overview (Pub. 98-806)