Self-Employment Tax in Texas (2026 Guide)

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

Texas imposes no personal income tax and no state self-employment tax. Self-employment tax is a purely federal 15.3% charge - 12.4% Social Security plus 2.9% Medicare - on net earnings of $400 or more, reported on Schedule SE. What Texas taxes instead is the entity, through the franchise tax.

Self-Employment Tax Is Federal, Not Texan

The most common misconception about working for yourself in Texas is that the state's famous lack of an income tax means self-employment is untaxed at 15.3%. It is not. Self-employment tax is a federal tax collected by the IRS, and it applies in Texas exactly as it applies in California. The rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare.

You owe it once net earnings from self-employment reach $400 for the year. That is a filing trigger rather than an exemption - crossing it makes the whole amount of net earnings subject to SE tax, not only the excess. Sole proprietors, single-member LLC owners, general partners, and most multi-member LLC members are all in scope.

What Texas genuinely spares you is a second layer of personal state income tax on the same profit. The Texas Comptroller's list of state taxes contains no individual income tax, which is why a Texas freelancer's total tax on business profit is usually lower than the same freelancer's would be in a state with an income tax - the federal bill is identical, but nothing stacks on top.

How the 15.3% Is Actually Calculated

The tax runs on net earnings, not gross revenue. You begin with business profit on Schedule C - receipts minus deductible expenses - and carry it to Schedule SE, which reduces the figure before applying the rate. That is why the effective rate on Schedule C profit is noticeably below a flat 15.3%.

The 12.4% Social Security portion applies only up to an annual wage base the IRS adjusts each year - $168,600 for 2024 - and any W-2 wages you earn consume that base first, so a moonlighting employee may owe only the Medicare portion on side income. The 2.9% Medicare portion has no ceiling, and an additional 0.9% Medicare tax applies above filing-status thresholds running from $125,000 to $250,000. You may deduct the employer-equivalent portion of SE tax in figuring adjusted gross income.

Model your own numbers with the self-employment tax calculator and read how self-employment tax works for the full mechanics.

Quarterly Estimated Payments

Because no employer withholds for you, the IRS expects quarterly estimated payments on Form 1040-ES covering both self-employment tax and federal income tax. Missing them produces an underpayment penalty even if you pay the full balance in April. This is the single most common avoidable cost for newly self-employed Texans, precisely because there is no state return to force the habit.

A workable discipline: move a fixed percentage of every client payment into a separate account the day it lands, and pay the IRS from that account four times a year. Because Texas has no personal income tax, that account only ever has one destination - which is genuinely simpler than in most states.

What Texas Taxes Instead: the Franchise Tax

Texas replaces personal income tax with an entity-level franchise tax administered by the Comptroller. It is a tax on taxable margin rather than on profit, and it reaches most entities that have liability protection - LLCs, corporations, and limited partnerships - but not, generally, sole proprietorships and certain general partnerships owned directly by individuals.

The critical number is the no tax due threshold: an entity with annualized total revenue at or below $2,650,000 for 2026 owes no franchise tax (the 2025 figure was $2,470,000). Above that, rates are 0.375% for retail and wholesale businesses and 0.75% for other businesses. The annual franchise tax report is due May 15, moving to the next business day if May 15 is a weekend or holiday.

Being below the threshold does not always mean filing nothing - check the Comptroller's filing requirements for the reports still expected of low-revenue entities. See Texas annual report and franchise tax and Texas LLC tax filing for the filing mechanics.

Does an LLC Change Your SE Tax?

Not by itself. A single-member LLC is a disregarded entity for federal income tax by default, so the owner files the same Schedule C and pays the same 15.3%. Forming an LLC in Texas buys liability protection and commercial credibility, not a lower self-employment tax bill.

What the entity does add is the franchise tax regime described above and a compliance calendar: a registered agent, the May 15 report, and record-keeping. For those weighing it, Texas LLC cost sets out the fees, and the Texas company agreement covers internal governance. If you are still trading as an individual, see what an LLC is for the comparison.

The S-Corp Election: the One Real Lever

The only structural way to reduce self-employment tax is the S-corporation election. An S corporation pays its owner-employee a reasonable salary subject to payroll taxes, and remaining profit can be distributed without self-employment tax. On a profit of $250,000 the saving is substantial; on a profit of $45,000 it is usually consumed by payroll costs, a separate federal return, and the risk of an IRS challenge to an unreasonably low salary.

Texas makes the election relatively attractive because there is no state income tax to complicate the analysis - but note that an S corporation is still a taxable entity for Texas franchise tax purposes. Read S-corp vs LLC and the S-corp election in Texas before filing Form 2553, and confirm the deadline: generally no more than two months and fifteen days after the beginning of the tax year the election is to take effect.

Deductions and Record-Keeping

Because SE tax is charged on net earnings, every legitimate deduction cuts both income tax and SE tax - a compounding benefit employees never see. The ones most often missed are the home office deduction, business mileage, the self-employed health insurance deduction, and retirement contributions to a SEP-IRA or solo 401(k). Retirement contributions reduce taxable income but not net earnings subject to SE tax, whereas ordinary business expenses reduce both.

Open a separate business bank account from day one; it is the practical habit that makes deductions defensible and keeps the liability shield credible if you have formed an entity. Most banks want an EIN, which is free from the IRS. For the wider filing picture see business tax basics, Texas business licensing, how to dissolve an LLC in Texas, and the glossary.

Frequently Asked Questions

Does Texas have a self-employment tax?

No. Self-employment tax is federal only, and Texas levies no state self-employment tax and no personal income tax. Texas self-employed people pay the federal 15.3 percent on net earnings of $400 or more, the same rate as everywhere else, but nothing further is stacked on top by the state.

What is the self-employment tax rate in Texas?

The federal rate is 15.3 percent, made up of 12.4 percent for Social Security and 2.9 percent for Medicare. The Social Security portion applies only up to an annual wage base the IRS adjusts each year. An additional 0.9 percent Medicare tax applies above filing-status thresholds of $125,000 to $250,000.

Does a Texas LLC pay franchise tax?

Only above the threshold. An entity with annualized total revenue at or below $2,650,000 for 2026 owes no franchise tax; the 2025 threshold was $2,470,000. Above the threshold, rates are 0.375 percent for retail and wholesale and 0.75 percent for other businesses. The annual report is still due May 15.

When is the Texas franchise tax report due?

May 15 each year. If May 15 falls on a weekend or holiday, the due date moves to the next business day. Entities below the no-tax-due threshold may still have reporting obligations, so check the Comptroller's franchise tax filing requirements rather than assuming that owing nothing means filing nothing.

Do I need to make quarterly estimated tax payments in Texas?

Federally, yes, if you expect to owe tax on self-employment income; you pay on Form 1040-ES four times a year. There is no state equivalent because Texas has no personal income tax. Skipping federal estimates produces an underpayment penalty even if you pay the full balance by the April deadline.

Can I reduce self-employment tax in Texas?

The main structural option is electing S-corporation status, which lets you pay yourself a reasonable salary and take remaining profit as a distribution not subject to self-employment tax. Beyond that, every legitimate business deduction reduces net earnings, which lowers both self-employment tax and income tax.

Related

• How self-employment tax works
• Self-employment tax calculator
• How to form an LLC in Texas
• Texas annual report and franchise tax
• Texas LLC tax filing
• S-corp vs LLC
• Texas business licensing
• How to dissolve an LLC in Texas

Sources

1. IRS - Self-Employment Tax (Social Security and Medicare Taxes) (15.3%; 12.4% + 2.9%; $400 threshold; $168,600 wage base for 2024; 0.9% additional Medicare tax).
2. IRS - About Schedule SE (Form 1040).
3. IRS - Estimated Taxes (Form 1040-ES).
4. IRS - About Schedule C (Form 1040).
5. Texas Comptroller - Franchise Tax ($2,650,000 no tax due threshold for 2026; $2,470,000 for 2025; May 15 due date; 0.375% and 0.75% rates).
6. Texas Comptroller - Franchise Tax Filing Requirements.
7. Texas Comptroller - Texas Taxes (list of state taxes; no individual income tax).
8. Texas Statutes - Tax Code Chapter 171, Franchise Tax.
9. IRS - Limited Liability Company (LLC) (default classification).
10. IRS - About Form 2553 (S corporation election).

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 amounts with the IRS and the Texas Comptroller of Public Accounts before acting.