A California LLC is taxed on two levels: the entity itself pays a mandatory $800 annual tax to the Franchise Tax Board plus a tiered gross receipts fee that can reach $11,790, and its net income passes through to each member’s personal California return, where it is taxed at rates up to 13.3%. That is the default treatment. An LLC can also elect to be taxed as a C-corporation or S-corporation, which changes the income tax mechanics but not the $800 tax or the fee.
The $800 Annual Tax
Every LLC doing business in California or registered with the Secretary of State owes an $800 annual tax to the FTB. It applies whether the LLC earned a profit, ran at a loss, or sat dormant. The obligation continues every year until the LLC is formally canceled with both the Secretary of State and the FTB.1Franchise Tax Board. Limited Liability Company
Payment is due by the 15th day of the 4th month after the beginning of the tax year, which is April 15 for a calendar-year LLC. You send it in with FTB Form 3522 (LLC Tax Voucher).2Franchise Tax Board. Due Dates: Businesses
California briefly waived this tax for an LLC’s first year if it was organized between January 1, 2021, and January 1, 2024. That exemption has expired, so LLCs formed in 2026 owe the full $800 in their first year.3California Legislative Information. California Revenue and Taxation Code 17941 One narrow exception remains. If you cancel the LLC within one year of organizing by filing a Short Form Cancellation (Form LLC-4/8) with the Secretary of State, the LLC is not subject to the $800 tax for that first year.1Franchise Tax Board. Limited Liability Company
The Gross Receipts Fee
On top of the $800 annual tax, California charges a separate fee based on total income from all sources derived from or attributable to the state. The fee is calculated on gross receipts, not net profit, so deductions and expenses do not reduce it. The tiers are:4California Legislative Information. California Revenue and Taxation Code 17942
- $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
An LLC below the $250,000 threshold owes nothing on this fee. Above it, the LLC pays both the $800 tax and the applicable fee, so the combined entity-level charge can reach $12,590 before anyone calculates net income. The estimated fee payment is due by the 15th day of the 6th month of the tax year (June 15 for calendar-year filers), using FTB Form 3536.2Franchise Tax Board. Due Dates: Businesses
The fee is hardest on high-revenue, thin-margin businesses. A company grossing $5 million but netting only $100,000 still owes $11,790 in addition to the $800 annual tax.
How the Income Itself Is Taxed
By default, California follows the federal classification of the LLC. A single-member LLC is treated as a disregarded entity, and a multi-member LLC is treated as a partnership. In both cases, the LLC pays no income tax of its own. Net income flows to the members and gets taxed on their personal California returns (Form 540), where the progressive rates top out at 13.3% on income above $1 million. That top bracket includes a 1% surcharge dedicated to mental health services.
The LLC still files an informational return. FTB Form 568, the Limited Liability Company Return of Income, reports the operation and calculates each member’s distributable share.5Franchise Tax Board. 2025 Instructions for Form 568 Limited Liability Company Return of Income For partnership-classified LLCs, Form 568 also produces a Schedule K-1 for each member showing their share of income, deductions, and credits. Members use the K-1 to complete their personal return. Because the income is taxed only once, at the individual level, pass-through treatment avoids the double taxation that hits C-corporations. That single layer of taxation is the main reason most California LLCs stick with the default.
Federal self-employment tax is a separate cost that active members often underestimate. Members who actively participate in the business owe 15.3% on their share of net earnings: 12.4% for Social Security on the first $184,500 of combined earnings in 2026, plus 2.9% for Medicare with no cap.6Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) High earners also face an additional 0.9% Medicare surtax on earnings above $200,000 for single filers or $250,000 for joint filers. Self-employment tax is a federal charge, not a California one, but it applies to the same pass-through income that California is taxing at up to 13.3%.
Electing Corporate Taxation
Any LLC can elect corporate taxation by filing the appropriate forms with the IRS. California follows the federal election. The entity still owes the $800 annual tax and the gross receipts fee, but the income tax mechanics change.
C-Corporation Election
An LLC taxed as a C-corporation pays California’s corporate franchise tax at a flat 8.84% on its net income.7Franchise Tax Board. Business Tax Rates When the remaining after-tax profits are distributed as dividends, owners pay personal income tax on those dividends. That is the classic double taxation: once at 8.84% at the entity level, again at the member’s personal rate. It generally makes sense only when the business plans to retain earnings rather than distribute them, or when outside investors require a corporate structure.
S-Corporation Election
An LLC electing S-corporation status pays a reduced entity-level tax of 1.5% on its California net income, with a minimum of $800.8Franchise Tax Board. S Corporations9Franchise Tax Board. Corporations After the 1.5%, the remaining income passes through to members on Schedule K-1 and gets taxed on their personal returns.
The main draw is self-employment tax savings. In a partnership-classified LLC, all net earnings from active members are subject to the 15.3% self-employment tax. In an S-corporation, only the wages paid to owner-employees hit payroll tax. Distributions above a reasonable salary do not. The IRS scrutinizes “reasonable compensation” closely, weighing factors like training, duties, time devoted to the business, and what comparable businesses pay for similar services.10Internal Revenue Service. Wage Compensation for S Corporation Officers Setting a salary too low to dodge payroll taxes is one of the fastest ways to invite an audit.
The tradeoff is the 1.5% California entity-level tax that partnership-classified LLCs do not pay. For LLCs with substantial net income, the self-employment tax savings usually outweigh the 1.5% cost. For lower-income LLCs, the math can go the other way.
The Pass-Through Entity Elective Tax
Since 2021, the federal SALT deduction has been capped at $10,000 per return. California’s pass-through entity elective tax (PTET) is a workaround. An LLC taxed as a partnership or S-corporation can elect to pay a 9.3% tax at the entity level on its qualified net income. Because the tax is paid by the entity, it is deductible as a business expense on the federal return, bypassing the SALT cap.11Franchise Tax Board. Pass-Through Entity (PTE) Elective Tax
Each qualifying member then claims a credit on their personal California return (using Form FTB 3804-CR) equal to their share of the entity-level tax paid. The credit offsets their California personal income tax, so the member is not paying twice. Unused credits carry forward for up to five years.11Franchise Tax Board. Pass-Through Entity (PTE) Elective Tax
Not every LLC qualifies. Publicly traded partnerships and entities required to be in a combined reporting group are excluded. Each qualifying member must consent to have their full distributive share included in the entity’s California net income. The PTET is available for tax years through 2030.
Withholding on Nonresident Members
If your LLC has members who live outside California, the LLC becomes a withholding agent. California requires the LLC to withhold 7% of any California-source payments or distributions to a nonresident member when the total exceeds $1,500 in a calendar year.12Franchise Tax Board. Withholding on Nonresidents Withholding payments follow a quarterly schedule on Form 592-Q, with deadlines of April 15, June 15, September 15, and January 15 of the next year.
A nonresident member can avoid having the LLC withhold on their behalf by signing Form FTB 3832, which grants California jurisdiction to tax that member’s distributive share directly. If a member refuses to sign, the LLC must pay tax on that member’s share at the member’s highest marginal rate. Signing Form 3832 does not replace the member’s obligation to file a California nonresident return; it just shifts the payment mechanism from withholding to direct filing.13Franchise Tax Board. Instructions for Form FTB 3832 Limited Liability Company Nonresident Members’ Consent
Filing Deadlines and Late Penalties
California’s LLC deadlines do not always mirror the federal ones, and missing them is expensive.
- $800 annual tax: 15th day of the 4th month of the tax year (April 15 for calendar-year LLCs), Form 3522.2Franchise Tax Board. Due Dates: Businesses
- Estimated gross receipts fee: 15th day of the 6th month (June 15), Form 3536.2Franchise Tax Board. Due Dates: Businesses
- Form 568 (LLC Return of Income): 15th day of the 3rd month after the close of the tax year (March 15 for calendar-year filers).
If a partnership-classified LLC files Form 568 late, the FTB charges $18 per member for each month (or partial month) the return is overdue, up to 12 months. For an LLC with five members, that is $90 per month and a maximum penalty of $1,080.14Franchise Tax Board. FTB 7268 LLC Limited Liability Company Collections Information That runs on top of any interest on unpaid taxes and any separate penalty for underpaying the estimated fee.