Texas Franchise Tax 2026: What It Is & How To Pay It Annually

The state of Texas provides a business-friendly operating environment with friendly tax requirements. Alongside this, it features a broad range of innovative industries and a large, dedicated workforce, making it a brilliant state in which to form and operate your Limited Liability Company (LLC).

Filing your Certificate of Formation with the Texas Secretary of State officially forms your LLC. Once completed, you must complete several state regulatory measures and tax filings to begin full business operations. One of them is the Texas Franchise Tax (TFT), which is Texas’s version of the Annual Report used in most other U.S. states.

The TFT is a mandatory state tax requirement imposed on LLCs, corporations, partnerships, and other business entities. It’s a privilege tax for the right to do business in the state, and is calculated on your taxable margin.

If you fail to file your Franchise Tax, you could face interest and penalties and risk losing your good standing with the state. In this article, I’ve provided a detailed overview of the TFT. I’ve discussed what it is, who needs to file it, and tips to stay compliant.

Franchise Tax In Texas Overview

The TFT is a mandatory state tax imposed on LLCs and other business entities for the privilege of doing business in the state. It’s calculated on your LLC’s taxable margin, not net profit.

For Texas LLCs, the franchise tax filing is closely tied to the Public Information Report (PIR), which is required to keep the business active and in good standing with the state.

Each year, filing obligations depend on whether the LLC has nexus in Texas and whether it meets specific revenue thresholds.

You can review the table below for an overview of these requirements, and I explain each scenario in more detail later in this section.

1. Cost Of The Texas Franchise Tax

You will not be charged a flat LLC Franchise Tax fee when filing your TFT. Your filing amount depends on your annualized total revenue and your business type.

Your Franchise Tax Rate is determined by your filing method and business type, set under the Texas Tax Code §171.0002:

• Retailers and wholesalers: 0.375% of the taxable margin.
• All other LLCs: 0.75% of the taxable margin.
• EZ computation method: 0.331% of the total revenue.

Make sure that your SIC Code and NAICS Code are accurate when filing your TFT return. This directly impacts your tax rate.

• Your NAICS code determines whether you qualify for the reduced 0.375% wholesale/retail rate.
• You must file the NAICS Code and SIC Code with the Texas Comptroller of Public Accounts to identify your active classification.
• The Texas Comptroller will default your LLC to the standard 0.75% tax rate if the code is incorrect or left blank. This can double the tax owed for wholesalers and retailers.

2. When Is The Franchise Tax Due In Texas?

You must file and pay your TFT by May 15 every year. This applies regardless of whether or not your LLC owes any tax.

Newly-formed LLCs must complete their first TFT return on the first May 15 following their formation. For example, if you formed your LLC in November 2025, you must file your first TFT return by May 15, 2026.

Filing Your Texas Franchise Return

I highly suggest that you enlist the help of an accountant if you’re not confident in this section. They’ll calculate your state regulatory requirements according to:

• Your taxable margin.
• Your annualized total revenue.
• Your apportionment percentage in Texas.
• The cost of goods sold (COGS) and/or compensation deductions (If applicable).
• combined-group reporting (If applicable).
• tiered-partnership election (If applicable)

You must file your TFT return with the Texas Comptroller of Public Accounts.

Use the 2026 Texas Franchise Tax Report Forms and 2026 Texas Franchise Tax Report Information and Instructions supplied by the Texas Comptroller’s Office.

Alternatively, you can find the form directly here:

• Long Form (Form 05-158): Required if your total revenue exceeds $20,000,000 (Including combined groups) or if you choose not to file the EZ Form. This applies the standard margin calculations (COGS, compensation, 30% election) to help your tax liability.
• EZ Computation Form (Form 05-169): You can use this if your total revenue is $20,000,000 or less (including combined groups). While it’s much faster and simpler to file, it limits your taxable deductions as it uses a fixed EZ rate.

1. How To File Online Via WebFile (Recommended)

You can file your TFT return using WebFile on the Texas Comptroller’s official portal. The portal allows you to file your Franchise Tax Return, request extensions, or make payments.

Why I recommend this option: It’s a highly efficient system with several integrated features. It performs the calculations, reduces your risk of rejection, and provides instant filing confirmation.

Here’s how to file the Franchise Tax in Texas using the online system.

2. How To File By Mail

You can also complete your Texas Franchise Tax filing by mail. However, this has a much longer processing time and does NOT provide immediate confirmation or a filing receipt.

• You must include a Payment Form along with your check or money order made payable to the Texas Comptroller.
• Download your payment form (Form 05-170) from the Texas Comptroller’s website.
• Review the Comptroller’s check-writing instructions.

You must submit your payment electronically if your tax payment is $10,000 or more. Under the Texas Comptroller’s requirements for reporting and paying franchise tax electronically, checks are no longer accepted. Your report and payment must be submitted separately.

Use the following address to submit your TFT mail filing;

TEXAS COMPTROLLER
P.O. Box 149348
Austin, TX 78714-9348

Who Needs To Pay The Texas Franchise Tax?

As stated above, you must complete the following regulatory requirements annually if your LLC is subject to the TFT. This ensures that you remain in good standing with the state:

• Franchise Tax Return (FTR): Used to report your annual revenue and tax classification. It must be paid at the time of filing if tax is due.
• Public Information Report (PIR): Updates the state on your current management information and ownership.

The Texas Tax Code §171.0002 lists certain entity types that are either included or exempt from the Franchise Tax. LLCs are not on the exemption list, meaning you must file your TFT regardless of whether you’re a single-member or a multi-member LLC.

If your LLC has Nexus in Texas and meets the State’s Revenue Threshold, it must file and pay the TFT.

1. What Is “Nexus?”

If you have “Nexus,” your LLC has performed enough state business to have a strong enough connection for the state to legally impose obligations. This includes tax obligations, as stated under the Texas Administrative Code §3.586(c).

You qualify for Nexus in Texas in the following situations:

• Economic Nexus: Your Annual Texas revenue is $500,000 or more. Stated under the Texas Administrative Code §3.586(f).
• Physical Nexus: Your LLC has a principal business address, employees, or property in the state and is considered to be “doing business.” The Texas Administrative Code §3.586(d) lists the 21 activities considered to be “doing business” by the state.

Note: You automatically have a Texas Physical Nexus if you officially form an LLC in the state.

2. The No-Tax-Due Threshold

Your tax obligations depend on how much your LLC makes annually. This applies even if your LLC has Texas Nexus.

• The latest threshold published by the Texas Comptroller’s Office is $2,650,000. This is starting from reports due in 2026 and 2027 (The threshold in 2025 was $2,470,000).
• This threshold is adjusted every two years as per the Texas Tax Code §171.006.

3. Do You Need To File It?

You’re required to file the Texas Franchise Tax Report if:

• Your local Texas LLC earns more than $2,650,000 in total revenue.
• You’re a foreign entity in Texas, but have Texas-sourced revenue of $500,000 or more, or total revenue of $2,650,000 or more.

I’ve summarized the TFT requirements in the table below to give you a better idea of what you need to do.

Step 1: Check If You Count As Having Texas Nexus

Step 2: If Nexus Applies – Filing & Tax

What Are The Penalties For Late Filing Or Non-Compliance?

The Franchise Tax requirements are strictly enforced by the state of Texas. If you fail to file or file late, you may be assessed with state penalties and fines. If you continue to not comply, your LLC may forfeit its legal rights and lose its limited liability protection.

1. Late Filing Penalties

You’ll be issued a $50 late filing penalty if you don’t file your TFT by the due date. You must file even if your LLC owes no taxes for the applicable period. This fee will be charged in addition to any other penalties.

2. Late Payment Penalties & Unpaid Tax Interest

State penalties and interest can start to add up quickly if you don’t pay your tax by the required deadline. Under Texas Tax Code § 171.362, these are the main consequences to be aware of:

• Your payment is 1–30 days late: 5% penalty.
• Your payment is over 30 days late: Additional 5% penalty (Total 10%).
• You accrue interest on unpaid tax 60 days after the due date. This equals the prime rate + 1% (Based on the rate published in the Wall Street Journal on the first business day of the calendar year).

3. Forfeiture Of Your Texas Business Transaction Rights

The Texas Comptroller may begin the business forefeiture process if you fail to file all required TFT reports and/or fail to pay the tax, penalties, and interest due. This is how it works:

1. You’ll be issued a Notice of Intent to Forfeit and have 45 days to comply.
2. Your right to transact business in the state may be forfeited if you fail to file or pay.
3. Your registration may be permanently forfeited if you remain non-compliant for 120 days after being forfeited.

The Texas Comptroller’s Key Contact Information

You should call the Texas Comptroller’s office if you have any questions regarding your TFT filing.

• Phone number: 512-463-4402.
• Business hours: 8:00 A.M. to 5:00 P.M. CST (Monday to Friday).

Frequently Asked Questions