Texas Multi-Member LLC Taxes: How Federal and State Tax Work

A Texas multi-member LLC is taxed as a partnership by default at the federal level — the LLC itself pays no federal income tax, and profits pass through to each member's personal return via Schedule K-1. Texas has no state income tax, so there is no state income tax return to file either. That said, your multi-member LLC must still file the Texas franchise tax report and Public Information Report (PIR) by May 15 each year, even if you owe nothing. Miss that deadline and your LLC faces penalties and eventual forfeiture of its right to operate in Texas.

Step 1: Understand the default federal tax treatment

When you form a multi-member LLC, the IRS automatically treats it as a partnership for federal tax purposes unless you elect otherwise. This means:

• The LLC files Form 1065 (U.S. Return of Partnership Income) annually with the IRS
• The LLC itself pays no income tax — income, deductions, and credits are allocated among members
• Each member receives a Schedule K-1 showing their share of the LLC's activity for the year
• Members report K-1 income on their individual returns (Form 1040, Schedule E)

Key deadline: Form 1065 is due March 15 for calendar-year partnerships. An automatic 6-month extension is available by filing Form 7004, pushing the deadline to September 15. Members cannot finalize their personal returns until they receive their K-1, so delays in filing Form 1065 cascade to every member's individual deadline.

Common mistake: Some multi-member LLC owners assume they don't need to file Form 1065 if the LLC had no income. That is wrong. If the LLC has more than one member and was active during the year, a partnership return is required even in a zero-revenue year.

Step 2: Calculate each member's self-employment tax obligation

For members who actively participate in the LLC's business, their share of LLC income is generally subject to self-employment (SE) tax — the equivalent of both the employer and employee shares of Social Security and Medicare.

For 2026:

• 15.3% on net self-employment earnings up to $176,100
• 2.9% on net earnings above that threshold

Each member pays SE tax individually on Schedule SE (attached to Form 1040). One-half of the SE tax paid is deductible on the member's federal return, which partially offsets the cost.

Important nuance: Not all LLC members are treated identically for SE tax. Active managing members generally owe SE tax on their distributive share. Passive investors with no management role may not — but the rules are fact-specific and have been subject to ongoing IRS guidance. A clear operating agreement that defines each member's role and level of participation helps establish SE tax treatment. Confirm each member's exposure with a tax professional before making filing decisions.

Step 3: File the Texas franchise tax report

Texas does not have a state income tax, but all Texas LLCs must file the franchise tax report by May 15 every year, regardless of revenue or profit level.

Which form to use:

• Form 05-169 (EZ Computation Report) if annualized total revenue was $20 million or less
• Forms 05-158-A and 05-158-B (Long Form) if annualized revenue exceeded $20 million

No-tax-due threshold: If your LLC's annualized total revenue is $2,650,000 or less (2026 threshold), no franchise tax is owed. The filing obligation still exists — you must submit the report even when no tax is due.

Tax rates when revenue exceeds the threshold:

• 0.375% for retail and wholesale businesses
• 0.75% for all other businesses

Penalties for missing the May 15 deadline:

• $50 late-filing fee assessed immediately
• 5% of tax owed if the report is filed within 30 days of the deadline
• 10% of tax owed if filed more than 30 days late
• Continued non-filing can result in forfeiture of the LLC's right to transact business in Texas, with personal liability for officers under Texas Tax Code § 171.255

How to file: Online via Texas Comptroller WebFile or by mail. WebFile is faster, confirms receipt immediately, and keeps your filing history accessible.

For a full walkthrough of the franchise tax filing process, see how to file the Texas franchise tax report.

Step 4: File the Public Information Report listing all members

The Public Information Report (PIR) is filed alongside the franchise tax report and is due on the same May 15 deadline. For a multi-member LLC, completing the PIR requires care.

What Form 05-102 (PIR) requires for an LLC:

• Name and address of each member (if member-managed)
• Name and address of each manager (if manager-managed)
• Name and address of the LLC's registered agent

If your LLC's ownership changed during the year — a new member joined, a member departed, or ownership percentages shifted — the PIR should reflect the current structure as of the filing date.

Common mistake: Multi-member LLC owners sometimes list only the primary member or manager and omit other members. The Comptroller requires all members to be listed. An incomplete PIR can be treated as a failure to file, triggering forfeiture independently of any franchise tax liability.

For more detail on what the PIR requires and how to complete it, see Texas Public Information Report for LLCs.

Step 5: Evaluate whether an S-corp election makes sense

Once a Texas multi-member LLC generates substantial profit, many owners explore electing S corporation status by filing IRS Form 2553.

Under an S-corp election:

• Members who work in the business must pay themselves a reasonable salary subject to payroll taxes (Social Security, Medicare, federal unemployment)
• Profit distributions above the salary are not subject to self-employment tax
• This can meaningfully reduce total SE tax for profitable LLCs

Texas franchise tax impact: Texas taxes S corporations at the same franchise tax rates as standard LLCs. An S-corp election does not reduce the Texas franchise tax bill — it only affects federal self-employment tax.

Tradeoffs to consider: The S-corp election requires running payroll, making quarterly employer tax deposits (Form 941), issuing year-end W-2s, and filing a separate S-corp return (Form 1120-S). For LLCs with modest profits, the administrative cost often exceeds the tax savings. For LLCs generating $80,000 or more in profit per active member, the math often favors the election — but the right threshold depends on your specific circumstances and should be evaluated with a CPA.

For a side-by-side comparison, see Texas LLC vs S-corp tax.

Quick reference

Frequently asked questions

Does a Texas multi-member LLC pay income tax?

A Texas multi-member LLC does not pay federal income tax at the entity level. By default it is taxed as a partnership: income and losses pass through to each member's personal return based on their ownership share. Texas has no state income tax. However, the LLC must still file the Texas franchise tax report and PIR by May 15 each year — even if total revenue falls below the $2,650,000 no-tax-due threshold for 2026.

What is Schedule K-1 and when is it due?

Schedule K-1 (Form 1065) is the document the LLC prepares for each member at year-end, showing their allocable share of income, deductions, and credits. It is part of the LLC's Form 1065 filing, with a copy distributed to each member. Form 1065 is due March 15 (September 15 with an extension). Members need their K-1 before they can complete their personal tax returns, so late partnership filings delay everyone's individual deadlines.

What happens if I don't file Texas franchise tax for my multi-member LLC?

Missing the May 15 franchise tax filing triggers a $50 late-filing penalty immediately, plus 5% of any tax owed if filed within 30 days of the deadline, or 10% if more than 30 days late. Continued non-filing allows the Texas Comptroller to forfeit your LLC's right to transact business in Texas. After forfeiture, officers and directors may become personally liable for the LLC's debts under Texas Tax Code § 171.255. See Texas LLC forfeiture notice: what to do if you have already received a notice.

Do members of a Texas multi-member LLC pay self-employment tax?

Generally, yes. Members who actively participate in running the business owe self-employment tax — 15.3% on net earnings up to $176,100 for 2026, and 2.9% above that threshold — on their share of LLC profits. Purely passive investors may be treated differently. Because the rules are fact-specific and subject to IRS scrutiny, each member's SE tax exposure should be confirmed with a CPA before filing.

Can a Texas multi-member LLC elect to be taxed as an S corporation?

Yes — by filing IRS Form 2553 with the IRS. Under an S-corp election, working members pay themselves a reasonable salary (subject to payroll taxes), and additional profit distributions are not subject to self-employment tax. Texas franchise tax still applies at the same rates regardless of the federal election. The election adds payroll and reporting requirements, so it tends to make financial sense once the LLC's profit is high enough that SE tax savings exceed the added administrative cost.

Not sure what else your Texas LLC owes?

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Last verified: 2026-05-01

Sources: Texas Comptroller — Franchise Tax · Texas Comptroller — Public Information Report · IRS — Form 1065 Instructions · Texas Tax Code § 171.255