Texas Margin Tax Calculator 2026 β All 4 Methods
Calculate Texas Franchise (Margin) Tax under all 4 methods: Revenue minus COGS, Revenue minus Compensation, Revenue minus 30%, and EZ method. Automatically recommends the lowest-tax method.
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No-tax-due threshold: $2.47M (2026). EZ method: must be under $20M. $
Method 1 deduction β typically direct cost of products $
Method 2 deduction β capped at 70% of total revenue $
Used to calculate extension payment if using automatic extension All 4 Methods Comparison
How Texas Franchise (Margin) Tax Is Calculated
Texas does not have a corporate income tax. Instead, businesses pay the Margin Tax based on a fraction of revenue. The key insight: you choose which deduction method minimizes your tax each year.
Method 1: Margin = Revenue β COGS | Tax = Margin Γ Rate
Method 2: Margin = Revenue β Compensation (max 70% of Rev) | Tax = Margin Γ Rate
Method 3: Margin = Revenue Γ 70% (30% deduction) | Tax = Margin Γ Rate
Method 4 (EZ): Tax = Revenue Γ 0.331% (only if Revenue < $20M)
Rate: 0.75% (other) or 0.375% (retail/wholesale)
No-Tax-Due Threshold: $2.47M (2026)
Maximum Margin = Revenue Γ 70% (70% cap applies to methods 1-3)
Method 2: Margin = Revenue β Compensation (max 70% of Rev) | Tax = Margin Γ Rate
Method 3: Margin = Revenue Γ 70% (30% deduction) | Tax = Margin Γ Rate
Method 4 (EZ): Tax = Revenue Γ 0.331% (only if Revenue < $20M)
Rate: 0.75% (other) or 0.375% (retail/wholesale)
No-Tax-Due Threshold: $2.47M (2026)
Maximum Margin = Revenue Γ 70% (70% cap applies to methods 1-3)
Example β $5M revenue, $2M COGS, $1.5M compensation, 0.75% rate:
Method 1: ($5M β $2M) Γ 70% cap = $2.1M margin β $15,750 tax
Method 2: ($5M β $1.5M) Γ 0.75% = $26,250 tax
Method 3: ($5M Γ 70%) Γ 0.75% = $26,250 tax
Method 4 (EZ): $5M Γ 0.331% = $16,550 tax
Recommended: Method 1 at $15,750 (lowest)
Method 1: ($5M β $2M) Γ 70% cap = $2.1M margin β $15,750 tax
Method 2: ($5M β $1.5M) Γ 0.75% = $26,250 tax
Method 3: ($5M Γ 70%) Γ 0.75% = $26,250 tax
Method 4 (EZ): $5M Γ 0.331% = $16,550 tax
Recommended: Method 1 at $15,750 (lowest)
Sources & References (click to expand)
- Texas Tax Code Chapter 171 β Texas Franchise Tax (margin tax statutes)
- Texas Comptroller β Franchise Tax (official guidance, rates, thresholds, forms)
- Texas Comptroller Form 05-158 β Texas Franchise Tax Report (annual return)
- Texas Comptroller Rule 3.591 β Margin: Total Revenue (administrative rules)
Extended
Method Comparison Dashboard
Side-by-side breakdown of all 4 Texas Margin Tax methods with SVG bar chart and multi-year planning table
Full 4-method comparison dashboard. Model revenue growth and compare savings across methods over multiple years.
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Tax by Method β Side-by-Side Comparison
Method 1 (βCOGS) Method 2 (βComp) Method 3 (β30%) EZ Method
Multi-Year Planning Table (Best Method Each Year)
| Year | Revenue | M1 Tax | M2 Tax | M3 Tax | EZ Tax | Best Method | Minimum Tax |
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Frequently Asked Questions
What is the Texas Franchise (Margin) Tax and who must file?
The Texas Franchise Tax (officially called the Margin Tax) is a privilege tax imposed on entities doing business in Texas. It applies to corporations, LLCs, partnerships, and most other business entities with Texas nexus. The no-tax-due threshold is $2.47 million in total revenue (2026). Entities below this threshold must still file an information report (Form 05-163) but owe no tax. The tax is calculated on "margin" β total revenue minus a deduction chosen from 4 methods. Individual proprietorships are generally exempt.
What are the 4 methods to calculate Texas Margin Tax?
Texas allows you to choose the method that produces the LOWEST tax: (1) Total Revenue minus COGS β best for product-heavy businesses with high cost of goods; (2) Total Revenue minus Compensation β best for service businesses with high labor costs (compensation deduction capped at 70% of total revenue); (3) Total Revenue minus 30% β a simple flat deduction available to all businesses; (4) EZ Computation β for businesses with revenue under $20M, pay 0.331% on total revenue. You recalculate each method every year and pick the lowest one.
What is the difference in tax rates for retail/wholesale vs other businesses?
Texas Franchise Tax has two rates: 0.375% for retail and wholesale businesses, and 0.75% for all other businesses. A "retail or wholesale" business primarily sells tangible personal property to end consumers (retail) or sells items for resale without manufacturing (wholesale). Service businesses, professional firms, restaurants, and technology companies generally pay the higher 0.75% rate. The rate applies to your calculated taxable margin after choosing the deduction method.
When is the Texas Franchise Tax return due?
The Texas Franchise Tax report is due May 15 for most calendar-year taxpayers. An automatic extension to November 15 is available, but any tax owed must be paid by May 15 to avoid interest. The Texas Comptroller sends out reminder notices. New entities in their first year of existence may have different due dates. Combined groups (related entities with 80%+ common ownership) can file a single combined report.
Can total revenue be reduced before calculating the margin?
Yes. Before applying the deduction method, certain items are excluded from total revenue: bad debt deductions for accounts written off, returns and allowances, intercompany transactions within a combined group, federal tax on alcohol, certain flow-through funds (like reimbursed costs), and dividends and interest received from subsidiaries. Revenue from certain passive activities may also be excluded. The starting point is gross revenue, then statutory exclusions are applied before the 4-method deduction.