2026 tax year · Texas
Is an S-corp election worth it in Texas?
Texas does not recognize the federal S election. It taxes the company as a C corporation, so electing here creates a state tax rather than avoiding one.
Work it out on your own numbers
The figures below use $100,000 of profit and our standard assumptions. Put your own in instead, this compares staying a sole proprietor against electing, with Texas's own charges on the company included:
Salary share and withdrawal share are percentages. The withdrawal figure only affects the C corporation, it is what decides whether the second layer of tax applies at all.
Enter your figures above and press Compare.
What the election is worth on $100,000 of profit
A single filer taking the standard deduction, paying themselves 40% of profit as salary, with $1,500 a year of payroll and filing cost:
| Tax as a sole proprietor | $22,365 |
| Tax as an S-corp, federal and personal state | $17,147 |
| Saving from the payroll-tax split alone | $5,218 |
| What Texas charges the company | − $0 |
| Net saving | $5,218 |
- Texas gross receipts tax. Franchise (margin) tax, report year 2026: 0.75% of taxable margin (0.375% retail/wholesale); EZ computation 0.331% of apportioned revenue under $20M. It is charged on turnover rather than profit, so it cannot be worked out from net profit alone. And it is owed whether or not the business made money.
The profit range where it actually pays in Texas
From about $20,000 of profit upwards. Below that, the $1,500 of payroll cost is more than the saving.
| Net profit | Sole proprietor | S-corp, all in | Difference |
|---|---|---|---|
| $60,000 | $12,037 | $8,928 | saves $3,110 |
| $100,000 | $22,365 | $17,147 | saves $5,218 |
| $150,000 | $37,608 | $29,632 | saves $7,975 |
| $250,000 | $65,815 | $58,520 | saves $7,295 |
What Texas does differently
Texas levies no personal income tax, so the entire question here is federal. The election saves payroll tax on the distribution and nothing else, there is no state layer for it to move, and no state return for the S-corp's owners to reconcile.
The Texas detail
Texas has no income tax so there is no rate on net income, but the franchise/margin tax applies to S corps as to any other entity, the federal election gives no Texas relief. The no-tax-due threshold for report years 2026-2027 is $2,650,000 of annualised total revenue; below it nothing is owed and no No Tax Due report is required, though a Public Information Report still is. Most small S corps therefore owe nothing.
How much salary to pay yourself
Enter your figures above and press Calculate.
Less salary means less payroll tax, so the arithmetic always points at the smallest salary you can justify. That is exactly why it is not a number to optimize: compensation has to be reasonable for the work you do, and the penalty for getting it wrong is reclassification plus back payroll tax. The cheapest row here is the riskiest one.
| Salary share | Salary | Distribution | Total tax | vs sole proprietor |
|---|---|---|---|---|
| 20% | $20,000 | $76,970 | $13,543 | $8,821 |
| 30% | $30,000 | $66,205 | $15,345 | $7,019 |
| 40% | $40,000 | $55,440 | $17,147 | $5,218 |
| 50% | $50,000 | $44,675 | $18,949 | $3,416 |
| 60% | $60,000 | $33,910 | $20,750 | $1,614 |
What this assumes
- Single filer, standard deduction, the business as the only income.
- 40% of profit taken as salary in the headline figures.
- $1,500 a year for payroll and a separate 1120-S, a cost estimate, not a tax figure, and it varies by provider.
- Comparing against a sole proprietorship. If you already trade through an LLC, some state fees are owed either way and are not a cost of electing.
- Anything listed as not modeled above is genuinely owed, it is excluded because it does not depend on profit, not because it is nil.
What these words mean
- Net profit
- What your business earned after business expenses, before any tax. It is the figure the self-employment tax is charged on, not what you took out of the business.
- Gross receipts
- Everything the business took in, before subtracting any costs. A tax on gross receipts is owed even by a business making a loss, which is what makes it different from a tax on profit.
- S corporation election
- Asking the tax office to treat your company as a pass-through, so profit is taxed to you rather than to the company. The owner takes a salary and the rest as a distribution, which is what saves payroll tax.
- Distribution
- Profit paid out to a company’s owner that is not salary. It is not subject to payroll or self-employment tax, which is the whole point of the S corporation election. And why the salary has to be defensible.