California Franchise Tax: Minimum Tax, LLC Fee, and S-Corp Tax Explained

LLCs: The $800 Annual Tax

According to the FTB, every LLC that is doing business in California or organized in California must pay an annual tax of $800. The tax is due each year, even if the LLC is not conducting business, until the LLC is canceled.

For a new LLC, the first-year annual tax is due by the 15th day of the 4th month after the date it files with the Secretary of State. After that, the annual tax is due by the 15th day of the 4th month of each taxable year, which is April 15 for a calendar-year LLC. The payment is made with the LLC Tax Voucher (FTB 3522). A first-year exemption from the $800 tax applied only to LLCs formed or registered in tax years beginning in 2021 through 2023.

LLCs: The LLC Fee

An LLC with total California income of $250,000 or more also owes an LLC fee, which is based on income, not profit:

• $250,000 to $499,999: $900
• $500,000 to $999,999: $2,500
• $1,000,000 to $4,999,999: $6,000
• $5,000,000 or more: $11,790

The fee must be estimated and paid by the 15th day of the 6th month of the current tax year, using the Estimated Fee for LLCs (FTB 3536). Penalties and interest apply to underpayments.

LLCs file the Limited Liability Company Return of Income (Form 568) by the original due date. LLCs must also file a Statement of Information with the Secretary of State; according to the FTB, the Secretary of State imposes a $250 penalty for failing to file it.

C Corporations

C corporations file Form 100. The California tax rate for C corporations other than banks and financial institutions is 8.84 percent of net income, and every corporation is subject to the $800 minimum franchise tax, which is due in the first quarter of each accounting period. The minimum tax is owed whether the corporation is active, inactive, or operating at a loss. According to the FTB, newly incorporated or qualified corporations are not required to pay the minimum franchise tax for their first year.

For example, a C corporation with $100,000 of California net income would owe $8,840 (8.84 percent), which exceeds the $800 minimum.

S Corporations

California recognizes S corporation status. S corporations file Form 100S and pay a tax of 1.5 percent of net income, subject to the same $800 minimum franchise tax. Their shareholders also pay California personal income tax on their share of the corporation’s income. According to the FTB, the minimum tax is waived for a newly formed or qualified S corporation filing an initial return for its first taxable year.

For example, an S corporation with $100,000 of California net income would owe $1,500 (1.5 percent), which exceeds the $800 minimum.

LLCs Taxed as Corporations

According to the FTB, an LLC must have the same classification for California and federal tax purposes. An LLC that elects to be taxed as a corporation for federal purposes is therefore treated as a corporation in California and follows the C corporation or S corporation rules above, rather than paying the LLC annual tax and LLC fee.

Sole Proprietors

A sole proprietor that has not formed an entity pays no entity-level franchise tax. Business income is reported on the owner’s personal California return. A single-member LLC, by contrast, is subject to the $800 annual tax and, if its income is high enough, the LLC fee, even though it is disregarded for income tax purposes.

Staying in Good Standing

Late returns and payments result in penalties and interest. According to the FTB, a business that has been suspended or forfeited is not in good standing and loses its rights, powers, and privileges to do business in California. To be revived, it generally must file all past-due returns, pay all past-due balances, and file a revivor request.

The Bottom Line

Most California LLCs owe at least $800 a year plus an income-based fee once total California income reaches $250,000. C corporations pay 8.84 percent of net income and S corporations 1.5 percent, each with an $800 minimum. These taxes apply regardless of profit, so they are worth including in any entity choice.