---
title: "California LLC Taxes in 2026: The $800 Franchise Tax, LLC Fee, and When to Consider an S-Corp Instead"
description: Discover California LLC tax obligations in 2026, including the $800 franchise tax and fees based on revenue, and when to consider S-Corp election.
image: https://hello.cpanguyen.com/hubfs/Hero%20Image%20Template%201%20(20).png
---

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 September 28, 2026

# California LLC Taxes in 2026: The $800 Franchise Tax, LLC Fee, and When to Consider an S-Corp Instead

 By  [NCO Team](https://hello.cpanguyen.com/blog/author/nco-team)  ·   8 minute read

**Key Takeaways**

- Every California LLC owes a flat $800 annual franchise tax, regardless of revenue or profit. This applies whether your LLC made money, broke even, or had zero activity.
- If your gross California income reaches $250,000 or more, a separate variable fee applies on top of the $800. This fee is based on revenue, not profit.
- The first-year exemption that existed from 2021 through 2023 has expired. LLCs formed in 2024, 2025, 2026, or later owe the full $800 in their first year.
- If your revenue is over $250,000, an estimated fee payment is due by June 15 of the current year. Missing it triggers a 10% penalty, unless your estimated payment equals or exceeds the total LLC fee you owed for the preceding taxable year.
- Electing S-Corp status removes the variable gross receipts fee, but does not eliminate the $800 minimum. The $800 still applies through the S-Corp franchise tax.
- Trying to avoid these fees through workarounds — sharing EINs, unusual entity structures — creates more problems than it solves and puts your compliance at risk.

California LLCs face two separate state charges every year: the mandatory $800 annual franchise tax and, if your revenue reaches a certain threshold, an additional fee based on gross income. Many business owners do not realize both can apply, or that the temporary first-year tax exemption that existed from 2021 through 2023 has expired.

This article explains what you owe, which tax vouchers to use, critical payment deadlines, and when electing S-corporation tax status can save you money.

## **The $800 Annual Franchise Tax**

Every LLC that is organized in California, registered to do business in California, or actively conducting business in the state owes a flat $800 annual tax to the California Franchise Tax Board (FTB). This tax is mandatory regardless of whether your business turned a profit, had zero income, or operated at a loss.

**Who owes it:**

- **Domestic California LLCs:** Formed directly with the California Secretary of State.
- **Foreign LLCs:** Formed in another state (like Delaware, Nevada, or Wyoming) but registered or actively operating in California.
- **All LLC Tax Classifications:** Single-member LLCs (disregarded entities), multi-member LLCs (partnerships), and LLCs electing corporate status.

## **When and How to Pay the $800**

The $800 is due by the 15th day of the 4th month of your taxable year. For calendar-year LLCs, that is April 15. For newly formed LLCs, it is due 4 months after your official formation date with the Secretary of State.

The best way to pay is online at ftb.ca.gov through Web Pay. You get a confirmation receipt you can keep for your records. Paper mail creates room for things to go wrong and leaves you without easy proof of payment. A paper voucher (Form FTB 3522) is available if you prefer to mail a check, but online is the better option for most people.

## **First-Year Exemption Status**

Under California AB 85, new LLCs formed between January 1, 2021, and December 31, 2023, received a temporary first-year exemption from the $800 tax. That exemption has expired. Any LLC formed in 2024, 2025, 2026, or later owes the full $800 tax for its first year.

## **The LLC Fee Based on Gross Income**

In addition to the $800 annual tax, California LLCs with total California income of $250,000 or more must pay a variable state fee.

Unlike income tax, this fee is calculated on gross income (total income derived from California sources plus cost of goods sold), not net profit. An LLC with high revenue and slim profit margins still owes the fee based on the top-line number. Total income for LLC fee purposes means gross income plus cost of goods sold, as defined under California Revenue and Taxation Code section 17941. This is different from taxable income or net profit.

**2026 California LLC Fee Schedule:**

| **Total California Gross Income** | **LLC Fee** | **Total State Cost (Annual Tax + Fee)** |
| --- | --- | --- |
| **Under $250,000** | **$0** | **$800** |
| **$250,000 – $499,999** | **$900** | **$1,700** |
| **$500,000 – $999,999** | **$2,500** | **$3,300** |
| **$1,000,000 – $4,999,999** | **$6,000** | **$6,800** |
| **$5,000,000 or more** | **$11,790** | **$12,590** |

## **Two Deadlines to Know**

A common mistake is waiting until tax season to deal with this fee. There are two separate moments:

The first is a mid-year estimated payment. If you expect your gross income to hit $250,000 or more for the year, an estimated fee payment is due by June 15. If you underestimate and underpay, the FTB charges a 10% penalty on the difference. You do not wait to see how the year ends. You estimate based on where your revenue is heading and pay by June 15.

The second is the annual return. Calendar-year LLCs file their annual LLC return by April 15 of the following year. That is where everything gets reconciled: the $800 you paid in April of the prior year, the estimated fee you paid in June, and the final number based on actual gross income. If you overpaid, you get a credit. If you underpaid, you owe the difference.

## **Two Deadlines to Know**

A common mistake is waiting until tax season to deal with this fee. There are two separate moments:

**The first is a mid-year estimated payment.** If you expect your gross income to hit $250,000 or more for the year, an estimated fee payment is due by June 15 (the 15th day of the 6th month for calendar-year LLCs). If you underpay, the FTB charges a 10% penalty on the difference. However, if your estimated payment equals or exceeds the total LLC fee you owed for the preceding taxable year, the penalty does not apply. If your LLC's taxable year ends before June 15, no estimated payment is due, and the full fee is paid with your annual return. For the estimated LLC fee, use Form 3536 (Estimated Fee for LLCs) if paying by mail, or Web Pay for online payments.

**The second is the annual return.** Calendar-year LLCs file their annual LLC return by April 15 of the following year. That is where everything gets reconciled: the $800 you paid in April of the prior year, the estimated fee you paid in June, and the final number based on actual gross income. If you overpaid, you get a credit. If you underpaid, you owe the difference.

## **Why Trying to Avoid These Fees Usually Makes Things Worse**

The $800 annual tax and the gross income fee are predictable costs of operating an LLC in California. Some business owners try to engineer their way around them. It rarely works, and it usually creates bigger problems.

**Sharing an EIN across multiple businesses.** Some owners try to run multiple businesses under a single EIN to avoid forming separate LLCs and paying separate fees. An EIN identifies a taxpayer entity. Running multiple distinct businesses under one EIN muddies your books, creates liability exposure, and makes it difficult to separate income, expenses, and tax obligations cleanly. When something goes wrong at one business, everything is exposed.

**Using an unusual entity structure just to sidestep state fees.** Some owners form entities in states with no income tax (Nevada, Wyoming) or restructure into entity types they would not otherwise choose, purely to reduce California obligations. If the business operates in California or is managed from California, the FTB generally considers it to be doing business in the state regardless of where it was formed. You end up with a foreign registration requirement and the same $800 tax, plus the added complexity of a structure that does not fit the actual business.

**Abandoning the LLC without formally dissolving it.** Stopping operations and closing the bank account does not cancel your LLC with the state. The $800 tax keeps accruing every year, along with penalties and interest, until you file a formal cancellation with the Secretary of State.

The right approach is to structure the business correctly from the start, pay what is owed, and make decisions based on the full tax picture rather than one line item. A clean entity structure saves time, reduces risk, and makes every other part of operating easier.

## **S-Corp Election: When It Might Make Sense**

An LLC can elect to be taxed as an S-corporation by filing IRS Form 2553. Legally, your business remains an LLC under state law, but its tax treatment changes fundamentally. To elect S-corp status for the current tax year, Form 2553 must generally be filed no later than 2 months and 15 days after the beginning of the tax year, or at any time during the preceding tax year.

One important clarification before getting into the numbers: S-Corp election does not eliminate the $800 minimum. You still owe at least $800 to California every year. What S-Corp election does remove is the variable gross receipts fee. Instead of paying the $800 plus the tiered fee based on revenue, you pay a 1.5% franchise tax on net income with an $800 minimum. Whether that is better or worse depends on your net income.

The main reason people consider S-Corp election has less to do with California fees and more to do with self-employment tax at the federal level.

**How S-corp taxation works:**

- As a default LLC, all net profit flows to your personal return and is subject to self-employment tax: 15.3% on net earnings up to $184,500 for 2026 (the Social Security wage base), plus 2.9% Medicare tax on everything above that.
- With an S-Corp election, you split the profit into two parts. You pay yourself a reasonable W-2 salary (for example, $80,000) and take the remaining profit as shareholder distributions ($70,000). Payroll taxes only apply to the salary. The distributions are not subject to those taxes. The IRS requires that your W-2 salary represent reasonable compensation for the services you perform for the business. Setting an artificially low salary to minimize payroll taxes can trigger IRS scrutiny and penalties.

**What it costs to run as an S-Corp:**

- You must run formal payroll and issue yourself a W-2
- Quarterly payroll tax filings (federal and California)
- Workers' compensation insurance may be required depending on your business type and whether you have other employees
- A more complex annual tax return
- Typically higher accounting fees

S-Corp election generally starts making financial sense when your LLC generates consistent net profit of $80,000 to $100,000 or more, after paying yourself a reasonable salary. Below that level, the compliance costs often outweigh the tax savings.

## **Dissolving an LLC to Stop the $800 Tax**

The $800 tax continues to accrue every year until your LLC is formally cancelled with the state. Merely stopping operations or abandoning the business bank account will result in accumulating taxes, penalties, interest, and administrative suspension by the FTB.

**Steps to dissolve a California LLC:**

1. **File Outstanding Tax Returns:** File all pending Forms 568 and pay all taxes, fees, and penalties owed to the FTB.
2. **File Cancellation with the Secretary of State:** Submit a Certificate of Cancellation (Form LLC-4/7) or Short Form Cancellation (Form LLC-4/8) with the Secretary of State.
3. **File Your Final Return:** File a final California Form 568 with the FTB, checking the box marked "Final Return".

## **The 15-Day Rule Exception**

An LLC is not subject to the annual tax or LLC fee if both of the following are true: (1) the LLC's taxable year is 15 days or less, and (2) the LLC did not conduct any business in California during that period. This can apply to a newly formed LLC with a very short initial taxable year, but it requires that no business activity occurred in California during those 15 days or fewer.

## **FAQ**

**Do I owe the $800 if my LLC had no income?**

Yes. The $800 annual tax is owed by every LLC that is organized, registered, or doing business in California, regardless of income or business activity.

**Does S-Corp election eliminate the $800?**

No. S-Corp election removes the variable gross receipts fee, but the $800 minimum still applies through the California S-Corp franchise tax (1.5% of net income, $800 minimum). You are trading one state charge for another. Whether the total is lower depends on your net income level.

**Can I avoid the $800 by forming my LLC in Nevada or Wyoming?**

No. If your LLC is managed by you from California, operates in California, or earns California-source income, the FTB considers it to be "doing business" in the state. You are legally required to register as a foreign LLC and pay the $800 annual tax.

**What happens if I fail to pay the estimated LLC fee on June 15?**

The FTB charges a penalty equal to 10% of the underpaid fee amount, plus compounding interest, assessed from the original June 15 due date. However, if your estimated payment equals or exceeds the total LLC fee you owed for the preceding taxable year, the penalty does not apply.

**When should I consider S-corp status?**

S-corp taxation often becomes worth considering when your LLC has consistent net profit of $80,000 to $100,000 or more, and the self-employment tax savings exceed the additional compliance costs. The exact threshold depends on your situation. Talk to your NCO advisor to run the numbers for your specific circumstances.

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