A Texas LLC pays federal income tax based on how the IRS classifies it, the Texas franchise tax at the state level, and — depending on what the business does — sales tax, employment taxes, and local property taxes. There is no Texas state income tax, so the question of what taxes an LLC pays in Texas really comes down to those federal obligations, one state-level entity tax, and a handful of situational taxes tied to sales, payroll, and property.
Here is what each of those actually looks like in practice.
Federal Income Tax by LLC Classification
The IRS does not have a tax category called “LLC.” Your LLC defaults to one classification and can elect another by filing the right form. The classification controls which return you file and how the profits get taxed.
Single-Member LLC
A one-owner LLC is a “disregarded entity” by default. The IRS looks past the LLC and taxes you directly on all business income.1Internal Revenue Service. Single Member Limited Liability Companies You report income and expenses on your personal Form 1040, usually on Schedule C. No separate business return.
Multi-Member LLC
Two or more owners means your LLC defaults to partnership taxation. The partnership itself owes no income tax, but it must file Form 1065 and issue each owner a Schedule K-1 showing their share of income, deductions, and credits.2Internal Revenue Service. About Form 1065, U.S. Return of Partnership Income Each owner then reports the K-1 figures on their personal 1040.
Filing Form 1065 late is expensive. For returns due after December 31, 2025, the penalty is $255 per partner per month, up to 12 months.3Internal Revenue Service. Failure to File Penalty A three-member LLC that files four months late owes $3,060 in penalties alone.
S Corporation Election
An LLC can elect S corporation treatment by filing Form 2553. The filing is due no later than two months and 15 days after the start of the tax year the election takes effect. For calendar-year businesses in 2026, that deadline is March 16 because the 15th falls on a Sunday.4Internal Revenue Service. About Form 2553, Election by a Small Business Corporation A newly formed LLC gets 75 days from its formation date.
The point of the S corp election is reducing self-employment tax. The entity files Form 1120-S and passes profits through to owners on K-1s. Owners who work in the business must pay themselves a reasonable salary; only that salary is subject to Social Security and Medicare taxes, and distributions beyond the salary are not.5Internal Revenue Service. Instructions for Form 2553
Setting your salary artificially low to dodge payroll taxes is one of the most common S corp audit triggers. The IRS looks at what comparable businesses pay for similar work, how much time you spend, and your training and experience. If the salary is too low, the IRS can reclassify distributions as wages and assess back taxes plus penalties.
C Corporation Election
An LLC can elect C corporation treatment by filing Form 8832. The entity then files Form 1120 and pays a flat 21% federal corporate income tax on its profits.6GovInfo. 26 USC 11 – Tax Imposed Owners pay no self-employment tax on corporate earnings, but any dividends distributed to owners are taxed again on their personal returns. For most small Texas LLCs, that double tax outweighs the benefit.
Self-Employment Tax and Quarterly Estimated Payments
Unless your LLC has elected S corp or C corp treatment, you owe self-employment tax on your share of net business earnings. The combined rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare.7Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) For 2026, the Social Security portion applies only to the first $184,500 of net earnings; the Medicare portion has no cap.8Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates An additional 0.9% Medicare surtax kicks in once net earnings pass $200,000 single or $250,000 married filing jointly.
Because Texas has no state income tax, there are no state estimated payments. You still owe federal estimated taxes quarterly if you expect to owe $1,000 or more at year-end. The 2026 deadlines are April 15, June 15, September 15, and January 15, 2027.9Internal Revenue Service. Estimated Tax Miss them and the IRS charges an underpayment penalty based on the shortfall and prevailing interest rates.10Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
You can avoid the penalty by paying at least 90% of your current-year tax or 100% of what you owed last year, whichever is less. If your adjusted gross income was above $150,000, the second threshold rises to 110% of the prior year’s tax.10Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
The Texas Franchise Tax
Texas does not tax individual or business income. Instead, it imposes the franchise tax on entities doing business in the state. It’s sometimes called the “margin tax” because it is calculated on a measure of revenue called margin, not on net profit.
Every LLC formed or registered to do business in Texas is a taxable entity for franchise tax purposes and must file an annual report.11Texas Comptroller of Public Accounts. Franchise Tax Out-of-state LLCs with $500,000 or more in Texas-sourced gross receipts also have nexus and owe the tax, even without a physical presence here.12Legal Information Institute. 34 Tex. Admin. Code 3.586 – Margin: Nexus
Most Small LLCs Owe Nothing but Still Must File
For the 2026 and 2027 report years, an LLC whose annualized total revenue is $2,650,000 or less owes no franchise tax.13Texas Comptroller of Public Accounts STAR System. Texas Comptroller of Public Accounts – Franchise Tax Most small Texas LLCs sit below this line. Falling below the threshold does not excuse you from filing, though. You still submit a Public Information Report to the Comptroller every year.14Texas Comptroller of Public Accounts. Texas Franchise Tax Public Information Report and Ownership Information Report
If your LLC exceeds the threshold, the standard franchise tax rate is 0.75% of taxable margin. LLCs primarily engaged in retail or wholesale trade pay 0.375%.13Texas Comptroller of Public Accounts STAR System. Texas Comptroller of Public Accounts – Franchise Tax Margin itself can be calculated four different ways, and you report whichever produces the lowest number.
Deadline and Penalties
The annual franchise tax report is due May 15. When May 15 falls on a weekend or holiday, the deadline moves to the next business day.11Texas Comptroller of Public Accounts. Franchise Tax A six-month extension to November 15 is automatic if you request it or make an estimated payment by the original deadline.
A newly formed LLC’s first report covers its formation date through the end of its first accounting year and is due the following May 15. An LLC formed in October 2025 files its first report by May 15, 2026.
Late filing triggers a $50 penalty on every report, even if no tax is owed.15Texas Comptroller of Public Accounts. Penalties for Past Due Taxes If tax is owed, late payment adds 5% at 1 to 30 days late, 10% beyond 30 days, and interest after 61 days.11Texas Comptroller of Public Accounts. Franchise Tax Repeated failure to file or pay lets the Comptroller forfeit your LLC’s right to do business in Texas, which strips liability protection from the owners.
Sales and Use Tax
If your LLC sells tangible goods or performs taxable services, you must collect and remit Texas sales and use tax. The state rate is 6.25%, and local jurisdictions can add up to 2%, for a combined maximum of 8.25%.16Texas Comptroller of Public Accounts. Sales and Use Tax You need a Sales Tax Permit from the Comptroller before making any taxable sale. Returns run monthly, quarterly, or annually depending on your collection volume.
Sales tax is collected from your buyers, not paid out of your profits. But you are personally responsible as the seller for remitting it correctly and on time. Failing to collect or remit sales tax is one of the easier ways for a Texas business to walk into a large, unexpected liability.
Employment Taxes if You Have Employees
Hiring adds a full layer of tax obligations. Federally, your LLC withholds income tax from employee wages and pays the employer’s share of FICA: 6.2% for Social Security (up to the $184,500 wage base in 2026) and 1.45% for Medicare.8Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates The LLC also owes Federal Unemployment Tax (FUTA).
At the state level, Texas employers pay unemployment insurance contributions through the Texas Workforce Commission. For 2026, rates range from 0.32% to 6.32% on the first $9,000 of each employee’s annual wages.17Texas Workforce Commission. Tax Rates Your rate depends on your industry and your company’s unemployment claims history. New employers get an assigned rate until they build their own.
Local Property Taxes
Texas has no state property tax, but counties, cities, school districts, and special districts do. If your LLC owns real estate, those parcels are taxed on appraised value the way residential property is.
The piece that often blindsides owners is the tax on business personal property: equipment, furniture, machinery, computers, inventory, and similar assets the LLC owns as of January 1 each year. You must file a rendition with the county appraisal district by April 15 declaring the existence and estimated value of that property. Skipping the rendition can trigger a penalty of 10% to 50% of the taxes owed on the unreported property. The appraisal district then uses the rendition to calculate your bill, typically due by January 31 of the following year.
If your LLC owns any physical assets beyond a laptop, check your county appraisal district’s requirements before the April deadline.