The Texas Strong Families Franchise Tax Credit is a new incentive that allows eligible businesses to receive a Texas franchise tax credit for designated contributions to qualified nonprofits that provide family-strengthening services.
Created by Senate Bill 2018, the program is designed to encourage private-sector support of organizations that help at-risk families achieve greater stability, self-sufficiency, workforce participation, and family engagement.
Businesses may receive a credit of up to $1 million annually, subject to a statewide annual cap of $5 million. Because credits are awarded through a first-come, first-served reservation process administered by the Texas Comptroller, early planning will be important for organizations interested in participating.
Key Takeaways
- The Texas Strong Families Franchise Tax Credit allows eligible businesses to receive a Texas franchise tax credit for designated contributions to qualified nonprofits.
- Credits are capped at $1 million per taxable entity annually, with a statewide annual limit of $5 million.
- Credits are awarded through a first-come, first-served reservation system administered by the Texas Comptroller.
- Eligible contributions must be made to nonprofits certified by the OneStar Foundation.
- The first credit reservation period opens August 3, 2026.
- Unused credits may generally be carried forward for up to five consecutive franchise tax reports.
- The program expires on January 1, 2029, though credits earned before that date may still be carried forward by donors under the statute.
Why It Matters
For businesses that already support charitable organizations, the Strong Families Franchise Tax Credit may provide an opportunity to generate both community impact and Texas franchise tax savings. Because the program has a limited annual allocation and requires advance reservation, businesses interested in participating should evaluate the opportunity early and coordinate charitable giving plans with their tax strategy.
How the Texas Strong Families Tax Credit Works
The process involves several steps:
- Reserve a credit allocation through the Texas Comptroller’s webfile system.
- Make a designated contribution to a nonprofit certified by the OneStar Foundation within 30 days of notification of successful credit allocation reservation.
- Receive a Certificate of Contribution from the nonprofit.
- The nonprofit submits the certificate to the Comptroller within 30 days.
- The Comptroller awards the credit.
- The business claims the credit on its following year’s franchise tax report.
The first credit reservation cycle opens August 3, 2026, at 9:00 a.m. through the Comptroller’s Webfile system.
How Much Is the Credit Worth?
The Strong Families Franchise Tax Credit is generally equal to the amount of the designated contribution, subject to several limitations:
- Maximum credit per taxable entity: $1 million annually
- Statewide annual credit cap: $5 million
- Credit is limited to the amount of franchise tax due after other applicable credits
- Unused credits may be carried forward for up to five consecutive reports
Because the statewide cap is relatively small, businesses interested in participating should evaluate the program early and be prepared for the reservation process.
What Is a Designated Contribution?
To qualify, a contribution must:
- Be specifically designated for purposes of the Strong Families credit at the time of donation.
- Be made to a nonprofit organization certified as eligible by the OneStar Foundation on the date of the contribution.
- Be made no later than December 31 of the year before the franchise tax report on which the credit will be claimed.
Contributions made before an organization receives certification do not qualify for the credit.
Which Nonprofits Qualify?
Eligible nonprofits must be certified through the OneStar Foundation and generally must:
- Be recognized as a 501(c)(3) organization.
- Be authorized to conduct business in Texas.
- Have provided qualifying family-strengthening services in Texas for at least three years.
- Meet additional eligibility requirements established by the program.
Qualifying services must generally include one of the following:
- Comprehensive Family Support Services: Programs that provide case management and support services designed to help at-risk families achieve stability, self-sufficiency, and workforce participation; OR
- Fatherhood Engagement Programs: Programs and resources that help fathers develop parenting skills and become more engaged in their children’s lives through educational and support initiatives.
The OneStar Foundation maintains a public list of certified organizations eligible to receive designated contributions.
Why Businesses Should Plan Early
One unique aspect of the Strong Families Franchise Tax Credit is the reservation requirement.
Businesses must reserve a credit allocation through the Comptroller before receiving certainty that a credit will be available. Once the annual statewide allocation reaches $5 million, additional applicants are placed on a waitlist.
After receiving approval, a business generally must complete its designated contribution within 30 days and before December 31 of the reservation year. Failure to meet these deadlines will result in forfeiture of the reserved credit allocation.
For organizations that regularly make charitable contributions, advance planning may be important to maximize the opportunity before annual credits are exhausted.
Key Considerations for Texas Businesses
Before pursuing the credit, businesses should consider:
- Expected Texas franchise tax liability.
- Timing of charitable giving activities.
- Availability of annual credit allocations.
- Documentation and compliance requirements.
- Coordination with other available Texas tax credits.
Because the credit can only be claimed against franchise tax due after applying other credits, businesses should evaluate how the Strong Families credit fits within their broader tax strategy.
Businesses considering participation in the Texas Strong Families Franchise Tax Credit program should be aware that receiving a state tax credit may affect the federal tax treatment of their contribution. Treasury regulations generally require a charitable deduction to be reduced by the amount of the state tax credit received, but many businesses—including corporations and pass-through entities—may qualify to deduct the payment as a business expense under a separate IRS safe harbor, provided the regulatory requirements are met. Because the federal tax treatment depends on the taxpayer’s specific facts, participants should consult their tax advisor.
How ML&R Can Help
The Texas Strong Families Franchise Tax Credit introduces a new planning opportunity for businesses that support charitable organizations while seeking to manage their Texas franchise tax liability.
ML&R’s tax advisors can help businesses evaluate eligibility, understand reporting requirements, coordinate credit planning with broader tax strategies, and navigate the compliance requirements associated with claiming the credit.
As guidance and administrative procedures continue to evolve, businesses should work closely with their tax advisors to determine whether participation aligns with their tax and charitable giving objectives.
Frequently Asked Questions
1. What is the Texas Strong Families Franchise Tax Credit?
It is a Texas franchise tax credit available to eligible taxable entities that make designated contributions to qualifying nonprofit organizations certified through the OneStar Foundation.
2. When does the program begin?
The program becomes effective June 1, 2026, and the first credit reservation period opens August 3, 2026.
3. How much credit can a business receive?
A taxable entity may receive up to $1 million in credits annually, subject to available statewide allocations.
4. Is the credit guaranteed if I make a donation?
No. Credits are awarded through a reservation system and are subject to annual statewide limits. Businesses should reserve a credit allocation through the Comptroller’s system.
5. Can unused credits be carried forward?
Yes. Unused credits may generally be carried forward for up to five consecutive franchise tax reports.
6. How do I know if a nonprofit is eligible?
Eligible organizations are certified by the OneStar Foundation and listed on the foundation’s website. Contributions must be made while the organization is actively certified.
ML&R’s tax professionals can help you evaluate eligibility, understand compliance requirements, and determine how this new credit may fit into your overall tax strategy. Contact our team to discuss your specific situation.
