S-Corp Election in Texas: Form 2553 and Franchise Tax (2026)

Fact-checked by the LegalGlass editorial team against primary sources · Published Aug 20, 2026 · Last updated Aug 20, 2026

An S-corp election in Texas is a purely federal filing: you file IRS Form 2553, generally no later than 2 months and 15 days after the beginning of the tax year the election is to take effect. Texas has no personal income tax and no separate state S-corp election, but the entity still reports Texas franchise tax to the Comptroller, with annual reports due May 15.

What an S-Corp Election Actually Is

"S-corp" is a federal tax classification, not a type of Texas entity. You do not form an S-corp with the Texas Secretary of State. You form an LLC or a corporation under Texas law, then ask the IRS to tax it under Subchapter S by filing Form 2553. The entity's Texas legal identity, its registered agent obligation, and its operating agreement are unchanged by the election.

The reason owners make the election is employment tax. In a default LLC, all net profit allocable to an active owner is generally subject to self-employment tax. Under an S-corp election, the owner is paid a salary subject to employment taxes, and remaining profit distributed to the owner is not subject to self-employment tax. See S-corp vs LLC for the trade-offs.

Eligibility Requirements

Not every entity can elect S status. The corporation - or the LLC electing to be treated as one - must be a domestic entity, have no more than 100 shareholders, have only one class of stock, and have only eligible shareholders. Individuals, certain trusts, and estates qualify; partnerships, corporations, and non-resident alien shareholders generally do not.

The one-class-of-stock rule is what most often trips up LLCs. An operating agreement with preferred returns, tiered distributions, or disproportionate allocations can be read as creating a second class of economic interest and can invalidate the election. Have the agreement reviewed against the election before you file, not after the first distribution.

The Form 2553 Deadline

Timing is the single most common failure point. To take effect for a given tax year, Form 2553 must generally be filed no more than 2 months and 15 days after the beginning of the tax year the election is to take effect - March 15 for a calendar-year entity - or at any time during the preceding tax year. Miss the window and the election ordinarily takes effect for the following year.

A newly formed entity's first tax year begins when it first has shareholders, assets, or begins doing business, so a Texas LLC formed in the middle of a year has its own 2-month-and-15-day clock. Late elections are not automatically fatal: the IRS provides relief for a late election where there was reasonable cause and the entity otherwise qualified, with the explanation entered on the form itself.

Completing and Filing Form 2553

Form 2553 asks for the entity's name, address, and EIN; the date and state of incorporation or organization; the effective date of the election; the selected tax year; and the name, address, ownership, and signed consent of every shareholder or member. Consent must be unanimous - one missing signature invalidates the filing.

Get the EIN first if you do not have one; see how to get an EIN. File the form with the IRS service center indicated in the instructions, keep proof of mailing or transmission, and watch for the CP261 notice confirming acceptance. If no confirmation arrives within a couple of months, follow up - discovering at filing time that the election was never accepted is an expensive surprise.

Texas Has No State S-Corp Election

Texas imposes no personal income tax, so there is no state-level counterpart to Form 2553 and no Texas election to file. Nothing goes to the Texas Secretary of State or to the Comptroller to "become an S-corp" in Texas. That absence is one reason Texas owners can evaluate the election on purely federal grounds.

What Texas does impose is the franchise tax, a privilege tax on taxable entities including LLCs and corporations. The franchise tax does not care about your federal S election in the way an income-tax state would; a Texas entity's franchise tax obligation is determined by its own rules. See Texas LLC tax filing and the business tax hub.

Texas Franchise Tax: Threshold and May 15 Deadline

Texas franchise tax annual reports are due May 15. For the 2026 report the no-tax-due threshold is $2,650,000 of annualized total revenue. An entity at or below the threshold owes no franchise tax.

The important nuance is that owing nothing does not mean filing nothing. Effective for reports due on or after January 1, 2024, an entity with annualized total revenue at or below the no-tax-due threshold is not required to file a No Tax Due Report - but it is still required to file a Public Information Report (PIR) or an Ownership Information Report (OIR). Missing that information report is a common way a small Texas LLC quietly falls out of good standing. See the Texas annual report guide.

Reasonable Compensation and Payroll

The S-corp election creates a payroll obligation. An owner who works in the business becomes an employee and must be paid reasonable compensation for services before profit distributions are taken. Wages are subject to Social Security, Medicare, and federal unemployment taxes, must be deposited on schedule, and are reported on Forms 941 and W-2.

Reasonable compensation is a facts-and-circumstances test that looks at duties, hours, experience, and what comparable roles pay. Setting an artificially low salary to shrink employment tax is a well-known audit issue and can result in reclassification, back taxes, interest, and penalties. Budget for a payroll provider or accountant - that recurring cost is exactly why the election does not pay off at low profit levels.

When the Election Is Worth It in Texas

The election tends to make sense once net profit comfortably exceeds a reasonable salary for the owner's role, because only the profit above that salary escapes self-employment tax. Below that point, payroll administration, a separate Form 1120-S, and extra accounting fees often exceed the savings. Texas's lack of a personal income tax means the analysis is essentially federal, which makes the math cleaner than in most states.

Weigh the costs honestly: an annual Form 1120-S with Schedules K-1, quarterly payroll filings, higher bookkeeping standards, and less flexibility in allocating profit. If it does not fit, a default single-member LLC remains simple and cheap. If you later want out, an S election can be revoked, but timing rules apply. See how to dissolve a Texas LLC if you are closing instead.

Frequently Asked Questions

How do I make an S-corp election in Texas?

File IRS Form 2553 with the unanimous signed consent of all shareholders or members. There is no Texas state election - Texas has no personal income tax. The entity still files Texas franchise tax reports with the Comptroller and continues to exist as an LLC or corporation under Texas law.

What is the deadline for Form 2553?

Generally no more than 2 months and 15 days after the beginning of the tax year the election is to take effect, which is March 15 for a calendar-year entity, or at any time during the preceding tax year. The IRS provides relief for a late election when there was reasonable cause.

Does Texas recognize S-corp status?

Texas has no personal income tax, so there is no state S-corporation election or state-level income tax benefit to obtain. The entity remains subject to the Texas franchise tax as a taxable entity, and its federal S election does not remove that obligation.

What is the Texas franchise tax no-tax-due threshold?

For the 2026 report the no-tax-due threshold is $2,650,000 of annualized total revenue. Entities at or below it owe no franchise tax and no longer file a No Tax Due Report, but they must still file a Public Information Report or an Ownership Information Report.

When are Texas franchise tax reports due?

Annual franchise tax reports are due May 15. Even an entity below the no-tax-due threshold must file the required Public Information Report or Ownership Information Report by that date to stay in good standing with the Texas Comptroller.

Do S-corp owners in Texas have to take a salary?

Yes. An owner who provides services to the S-corporation is an employee and must receive reasonable compensation, reported on a Form W-2 with employment taxes withheld and deposited, before taking profit distributions. Understating that salary is a recognized IRS audit issue.

Related

• S-corp vs LLC (cluster hub)
• How to form an LLC in Texas
• Texas annual report and franchise tax
• Texas LLC tax filing
• Texas registered agent
• How to get an EIN
• Single-member LLC basics
• Self-employment tax explained
• What is an LLC?

Sources

1. IRS - About Form 2553, Election by a Small Business Corporation (2 months and 15 days deadline).
2. IRS - S Corporations (eligibility; 100 shareholders; one class of stock).
3. IRS - About Form 1120-S (S corporation return and Schedule K-1).
4. IRS - S Corporation Compensation and Medical Insurance Issues (reasonable compensation).
5. Texas Comptroller - Franchise Tax.
6. Texas Comptroller - Requirements for Reporting and Paying Franchise Tax (PIR/OIR still required below the threshold).
7. Texas Comptroller - 2026 Texas Franchise Tax Report Forms (reports due May 15, 2026).
8. Texas Comptroller - No Tax Due Report ($2,650,000 threshold for 2026).
9. Texas Secretary of State - Business and nonprofit forms.
10. Legal Information Institute - 26 U.S.C. 1362 (election; revocation; termination).
11. IRS - Limited Liability Company (LLC) (default federal tax classification).
12. IRS - Get an Employer Identification Number (EIN) (free; one per responsible party per day).

LegalGlass provides general information for educational purposes and is not legal advice, is not a law firm, and is not a substitute for advice from a licensed attorney or tax professional. Laws, fees, and thresholds change; verify current requirements with the IRS and the Texas Comptroller of Public Accounts before acting.