What you need to know about the Second Texas Franchise Tax Extension

UPDATE 8/2/2022 – I’ve created an updated post for the Second Franchise Tax Extensions due on August 15, 2022 for the 2021 report year. You can find it here: Do You Need A 2nd Texas Franchise Tax Extension?

UPDATE: The Texas Comptroller has added time to file extended Texas Franchise Tax Reports. If you extended your Texas Franchise Tax Report on July 15, 2020 (for non-EFT Franchise Taxpayers) and August 15, 2020 (for EFT Franchise Taxpayers), the due date is now January 15, 2021. Their initial posting had said it was only extended to the normal November 15 deadline.

A couple weeks ago the tax world thought we were through with extensions for 2019, but that’s not the case for some businesses that file a Texas Franchise Tax report. If you remember, back in April the state of Texas postponed the traditional May 15th deadline until July 15 to align with the postponed federal tax deadlines for corporations and individuals. However, the state did not extend the second deadline for businesses that pay more than $10,000 in franchise tax.

What is the second Texas Franchise Tax Extension?

Business that paid $10,000 or more in franchise tax payments during the preceding state fiscal year (September 1 through August 31) are required to make their payments electronically. If your business falls into this category, your first deadline is the normal May 15 deadline. However, if you file an extension on May 15 for one of these businesses, the deadline is only extended for 3 months, until August 15. On August 15, you either have to file your franchise tax return or request a 2nd 3 month extension, which gives you until November 15 (January 15, 2021 for the 2020 Texas Franchise Tax Report). Since the May 15 deadline was postponed until July 15, the first extension for these businesses turns out to only be for one month. In 2020, the August 15 deadline falls on a Saturday, so the due date will fall on Monday, August 17, 2020 for 2020 Texas Franchise Tax Reports. These are the reports for business who have a tax year that ended during 2019. For a full discussion on the tax years and report years, see my post “Answers to Common Questions About the Texas Franchise Tax Report.”

Do you need to make a payment with the second extension?

Like all tax questions, the answer to the question of whether to make a payment depends on your situation. As a reminder, for the first extension (due July 15 for 2020), you’re required to pay in either 100% of your prior year tax or 90% of your current year tax liability. Regardless of the amount you paid on the first extension, you need to make up any difference between what you paid on May 15 (or July 15, 2020) with the remaining amount you’ll owe on the current year’s franchise tax report. So, if you paid in 90% of the current year tax liability, you’ll need to pay the remaining 10% of the tax liability with this second extension.

Do I have to pay electronically?

Yes! If you fall into this category of taxpayer, you are required to make your payments electronically, regardless of the amount of the payment. So, even if this payment is less than $10,000, it still must be made electronically. Let’s face it, with today’s technology and the state’s simple electronic payment systems, you should be paying all your franchise tax payments electronically regardless of the amount.

How do I make an electronic payment for my Texas Franchise Tax?

The state gives you a few methods for electronic payments. Here are the two most common methods:

TEXNET – The traditional electronic payment method is called TEXNET. All businesses are able to create a TEXNET account and make payments through this system. However, if your total franchise tax payments for the prior year are $500,000.00 or more, then you are REQUIRED to use the TEXNET system to pay your franchise tax. The one thing to remember for this system is that you have to initiate the payment by 8 p.m. (CT) one business day before the date of the payment. Since the August 15 deadline falls on a Saturday in 2020, the deadline to file the extension is on Monday, August 17, however, you need to initiate your TEXNET payment by 8 p.m. CT on Friday, August 14, 2020.

Webfile – The Texas webfile service is available to all taxpayers who paid less than $500,000 in the prior year. If you are required to pay electronically and you don’t use TEXNET, then you should use the webfile service to make your franchise tax payment. This applies to businesses that paid $10,000 to $499,999.99 and are not using the TEXNET system.

To make an electronic payment and file the second extension, the state has a website with multiple filing and electronic payment options. Get more information on these options at the Comptroller’s “File & Pay” website.

If you still have questions about your second franchise tax extension ask your tax professional or send me a message at my Contact Me page.