Texas guide
LLC vs S-Corp in Texas
Texas has no personal state income tax, but LLC vs S-Corp estimates should still account for Texas franchise tax and reporting obligations.
Short answer
In Texas, the LLC vs S-Corp question is still mostly driven by the federal self-employment tax vs payroll tax comparison. Texas does not have a personal state income tax, but Texas franchise tax can apply to taxable entities formed in or doing business in Texas, including LLCs and S corporations.
That means a Texas business owner should not only ask whether S-Corp treatment changes federal payroll tax. They should also ask whether Texas franchise tax reports, information reports, thresholds, and admin costs change the practical result.
Texas franchise tax basics
The Texas Comptroller describes franchise tax as a privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas. Taxable entities include LLCs, single-member LLCs, corporations, and S corporations.
For report years 2026 and 2027, the Comptroller lists the no-tax-due threshold at $2,650,000. Entities at or below the threshold may still have information report obligations, so do not treat the threshold as a reason to ignore Texas compliance entirely.
| Texas franchise tax item | 2026/2027 amount |
|---|---|
| No tax due threshold | $2,650,000 for 2026 and 2027 report years |
| Tax rate for retail or wholesale | 0.375% |
| Tax rate for other businesses | 0.75% |
| EZ computation total revenue threshold | $20 million |
| EZ computation rate | 0.331% |
Texas LLC vs S-Corp comparison
| Issue | Default LLC | S-Corp treatment |
|---|---|---|
| Texas personal income tax | No Texas personal income tax, but federal tax and franchise tax rules may still matter. | No Texas personal income tax, but federal payroll/income tax and franchise tax rules may still matter. |
| Texas franchise tax status | LLCs, including single-member LLCs, are listed as taxable entities. | S corporations are listed as taxable entities. |
| Federal self-employment / payroll comparison | Default single-member LLC treatment commonly resembles sole proprietor self-employment tax treatment. | Salary is generally subject to payroll taxes; remaining profit may be distributed differently. |
| Admin complexity | May be simpler than S-Corp treatment, but Texas franchise reports or information reports may apply. | Adds payroll, reasonable compensation, S-Corp tax filings, and Texas franchise/reporting coordination. |
How to use SCorpMath for a Texas business
Start with the S-Corp tax savings calculator. Enter expected net profit, salary, filing status, and other W-2 wages if relevant. For admin costs, include payroll, bookkeeping, tax preparation, and any Texas franchise tax/reporting costs you expect to apply.
SCorpMath does not calculate Texas franchise tax margin, apportionment, cost of goods sold, compensation deductions, or EZ computation results. Those items should be reviewed using Texas Comptroller guidance and a qualified tax professional.
Questions to ask before electing S-Corp treatment in Texas
- Is the business below or above the Texas no-tax-due threshold?
- Will the business still need a Public Information Report or Ownership Information Report?
- Would the business use regular franchise tax computation or EZ computation?
- What salary could be supportable for the owner's services?
- How much will payroll and S-Corp tax filing add each year?
- Does Form 2553 timing affect the year being analyzed?
Texas FAQ
Does Texas have a state income tax for LLC or S-Corp owners?
Texas does not have a personal state income tax, but Texas taxable entities may still have franchise tax and information report obligations.
Are Texas LLCs and S corporations subject to franchise tax?
The Texas Comptroller lists LLCs, single-member LLCs, corporations, and S corporations among taxable entities subject to Texas franchise tax if formed in or doing business in Texas.
Does Texas franchise tax eliminate the S-Corp tax savings question?
No. The federal self-employment tax and payroll tax comparison can still matter, but Texas franchise tax thresholds, rates, and filing obligations should be included in the analysis.