California S-Corp $800 minimum franchise tax unchanged for 2026

The California Franchise Tax Board has confirmed the $800 minimum franchise tax (RTC §23151) and the 1.5% S-Corp net-income franchise tax (RTC §23186) are unchanged for tax year 2026. The BizTaxMetrics California page usesmax($800, netProfit × 0.015) for the S-Corp recurring cost, which is the correct order-of-magnitude estimate for a small single-owner S-Corp.

How California taxes S Corps differently

California is one of the few states that imposes a separate entity-level franchise tax on S Corporations. Most states recognize the federal S-Corp election and tax the entity as pass-through with no additional entity-level tax. California does not. The FTB charges two overlapping levies on S Corps:

1. The $800 minimum franchise tax under Revenue and Taxation Code §23151. This is the same minimum that applies to LLCs and C Corporations. It is due every year regardless of profitability, and it is due from the first year of operation (new entities get a first-year exemption in some cases, but the minimum kicks in immediately for most S Corps that elect status mid-year).

2. The 1.5% net-income franchise tax under RTC §23186. This is a separate tax on the S Corp’s net income, computed on the California return (Form 100S). The 1.5% rate applies to the entity’s California -source net income, not to the shareholder’s distributive share.

The two taxes stack. An S Corp in California pays whichever is higher between the $800 minimum and the 1.5% computation, but in practice most S Corps with meaningful profit pay the 1.5% amount because it exceeds $800 once net income exceeds roughly $53,333.

Practical impact

At $100,000 net profit, the S-Corp in California pays:

• 1.5% × $100,000 = $1,500

versus the LLC’s $800 floor. That $700 delta (state-only) is the “California penalty” the calculator’s net modeled benefit already subtracts. At $200,000 net profit, the S-Corp’s California franchise tax rises to $3,000 — a $2,200 gap above the LLC’s $800 minimum.

The practical effect is that the S-Corp election in California has a higher breakeven point than in most other states. The federal payroll tax savings must be large enough to overcome both the $800 LLC minimum and the additional 1.5% S-Corp franchise tax before the election produces a net benefit.

When it stops being worth it

For very small LLCs ($40K or less net profit), the LLC’s $800 floor already wipes out most of the federal delta. The S-Corp election in California is rarely worthwhile below ~$70K net profit unless the state fee can be amortized across multiple owners.

The breakeven analysis is straightforward: the federal payroll-tax delta at a given salary level must exceed the California S-Corp franchise tax minus the LLC’s $800 minimum. At the BizTaxMetrics default $100K profit / $50K salary, the federal delta is roughly $8,000–$9,000 (depending on filing status). After California’s $700 incremental cost ($1,500 S-Corp minus $800 LLC), the net modeled benefit is still positive — but significantly smaller than in zero-fee states like Texas or Wyoming.

For business owners considering the S-Corp election in California, the calculator’s California-specific output already reflects this math. Move the profit and salary sliders and watch how the California fee reduces the net benefit compared to states with lower or zero recurring fees.

What the calculator shows

The BizTaxMetrics California state page computes the S-Corp recurring cost as max($800, netProfit × 0.015) — the statutory minimum floor applied to the 1.5% net-income computation. The LLC recurring cost is the $800 minimum. The difference between the two is what gets subtracted from the federal payroll-tax delta in the “Estimated net modeled benefit” line. You can adjust the profit and salary sliders to see how the California fee affects the breakeven at your specific numbers.

First-year exemption and the $800 floor

California offers a first-year exemption from the minimum franchise tax for some newly formed entities, but the qualifying rules and the formation window have been amended more than once, and they are not identical for corporations and LLCs. The practical advice is simple: do not assume the exemption applies to you, and do not model it into a budget before reading the current-year instructions from the FTB. If you formed the entity late in a prior year, the first return may also be a short-period return, which changes the arithmetic even when the $800 floor still applies.

One clarification the exemption does not change: the first-year relief, when available, forgives the minimum only. It does not forgive the 1.5% net-income franchise tax under RTC §23186 on income actually earned in that period, and it does not carry forward to later years.

Estimated payments, deadlines, and penalties

California expects entities to pay as they go. If the expected franchise tax for the year is at or above the statutory threshold, estimated payments are required in four installments — April, June, September, and December for a calendar-year corporation — filed with the FTB using the corporation's estimated tax voucher or your account online. Missing an installment does not by itself create a penalty if the final return is paid in full and on time, but underpayment can trigger interest.

The penalty that matters for most small S Corps is the one attached to a late minimum franchise tax payment. The FTB can assess a penalty of up to 25% of the unpaid minimum tax, plus interest that accrues from the original deadline. Because the minimum is due regardless of profitability, a money-losing year is exactly when an owner is most likely to skip the payment — and exactly when the penalty hurts most, because there is no cash flow to absorb it.

What happens if the tax goes unpaid

Nonpayment leads to suspension or forfeiture. While suspended, the entity cannot legally transact business in California, cannot license, cannot sue or defend a lawsuit, and cannot sign contracts in its own name. The tax keeps accruing anyway. Reinstatement requires paying everything owed, the penalties and interest, and a reinstatement fee, and the entity's good-standing record stays public for anyone who checks the FTB's business entity search.

For an S Corp specifically, a long suspension creates a second problem: the federal S election depends on the entity continuing to function as an S corporation, and a suspended entity that has to unwind or restructure creates tax questions that need a licensed professional, not a calculator. If you are considering letting a California entity lapse rather than paying the $800, domesticating the business in the state where you actually operate is usually the cleaner move — and that decision should be made deliberately, not by inaction.

Worked examples at three profit levels

The 1.5% rate overtakes the $800 floor at about $53,333 of California net income. Above that point the S Corp's recurring state cost scales linearly while the LLC's does not:

• $60,000 net income — 1.5% = $900. The S Corp pays $900 against the LLC's $800, a $100 incremental state cost.
• $100,000 net income — 1.5% = $1,500, a $700 incremental cost above the LLC floor.
• $250,000 net income — 1.5% = $3,750, a $2,950 incremental cost. At this level the state bill is real money and it is billed every year, not just in profitable years.

These figures assume all of the net income is California-source. An S Corp with income earned outside California may apportion part of the base to other states on Form 100S, which lowers the California computation; the calculator models the full-California case because that is the conservative estimate for an owner working entirely in state.

How California compares

California is the high-water mark for small S Corp owners. It combines an $800 floor with a percentage-of-income levy, while states like Texas and Wyoming charge no recurring entity-level fee for a typical small LLC or S Corp beyond a modest annual report. Delaware's $400 annual tax is the same dollar amount for LLCs and S Corps, so the state cost there does not change the breakeven at all. New York and Massachusetts impose their own entity-level charges, but none of them stack an 800-dollar minimum on top of a net-income percentage the way California does.

The full breakdown is on the state-by-state S Corp cost comparison, which lists every state's LLC recurring cost, S-Corp recurring cost, and income tax status side by side.

Frequently asked questions

Is the $800 due in a year my S Corp lost money? Yes. The minimum franchise tax is not income-based. It is owed whether the entity had revenue, profit, or nothing at all, subject only to the first-year exemption and to suspension if you simply stop filing.

I just formed my LLC. Do I owe $800 in year one?Possibly not — California provides a first-year exemption for qualifying new entities, and the rules have changed across tax years. Confirm the current year's treatment with the FTB before you rely on it.

Is the $800 different from what I would pay as an LLC? No. An LLC that elects S Corp status is still an LLC for California purposes and pays the same $800 minimum. The 1.5% franchise tax under RTC §23186 is the extra layer that only appears once the S election is in effect.

Can I reduce the 1.5% by paying myself a smaller salary?No. The tax is computed on the entity's net income, not on your wages, so the salary split that matters for federal payroll tax is irrelevant here. Cutting your salary does not shrink the California bill — it only creates reasonable-compensation exposure on the federal side.

Is the franchise tax deductible? California franchise tax is an ordinary cost of doing business and is generally deductible for federal purposes; state treatment follows the FTB's own rules. Your preparer should confirm how it lands on your particular return.

Where do I see these numbers on this site? TheCalifornia state page shows both the LLC recurring cost and the S-Corp recurring cost, and the homepage calculator subtracts the difference from the federal payroll-tax delta before showing the net modeled benefit.

Source

• California Franchise Tax Board — Form 100 / Form 100S instructions (2026)
• RTC §23151 (minimum franchise tax)
• RTC §23186 (S-Corp net-income franchise tax)
• BizTaxMetrics California state page