Franchise Tax Issues for Physicians

Physicians and other businesses have until May 15 each year to file their state franchise tax returns or seek a filing extension without having to pay a 5-percent penalty.

Texas Medical Association worked first with the Texas Legislature and then with the Comptroller of Public Accounts in 2007 and 2008 to ensure, physicians could exclude from their taxable revenue payments from Medicare, Medicaid, TRICARE, the Children's Health Insurance Program, and workers' compensation plans (including patients' deductibles and copays).  Physicians also can claim some allowance for uncompensated care, even when patients have made small partial payments. Expenses attributable to uncompensated care cannot be deducted if the cost of that care is excluded from revenue.

The Texas Legislature created the new franchise tax in 2006 as part of Gov. Rick Perry's school finance reform plan. 

The tax impacts all corporations, limited liability partnerships, professional associations, some general partnerships, and other business entities. The tax is calculated based on a business' gross receipts minus the cost of goods sold or the cost of compensation and benefits paid to owners and employees, up to certain limits. Businesses with taxable gross receipts less than $1,130,000 in 2017 pay no tax, but may be required to file certain informational reports.  The tax rate for physician practices in 2017 is 0.75 percent. Sole proprietorships are exempt from the margins tax, meaning physicians in solo practice who are not organized as a professional association will not be affected.  General partnerships in which all partners are individuals rather than business entities are also exempt from the margins tax, if they have not registered as limited liability partnerships, Any entity that is a federally qualified nonprofit organizations can also claim exemption

Thanks to TMA lobbying, physicians and health care providers have special treatment and can exclude revenues they receive for covered services they provide to beneficiaries in Medicare, Medicaid, TRICARE, the Children's Health Insurance Program, workers' compensation plans, and in accordance with the Indigent Health Care and Treatment Act. Another exclusion is available for the actual costs of uncompensated care, calculated by multiplying the total uncompensated care charges by the ratio of total cost to total charges for the practice. According to the Comptroller's rules, physicians can exclude all of these revenues, including related copays, coinsurance, and deductibles and program payments from private plans, but health care facilities can exclude only 50 percent. 

Deductible compensation expenses include wages, salaries, and benefits with some limitations, but do not include contract labor payments.

More information

Texas Comptroller:  https://comptroller.texas.gov/taxes/franchise/

Related Information

 

 

Action, June 2, 2008
Revised Feb. 12, 2018

 

Last Updated On

February 17, 2018

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Taxes | Texas legislation