Do California LLCs Pay the $800 Fee the First Year?
This article provides general information for educational purposes only. It is not legal advice, does not create an attorney-client relationship, and should not be relied upon as a substitute for consultation with a qualified attorney. Laws vary by state, and individualized guidance is recommended.
California’s first-year franchise tax exemption has expired. Learn when the $800 LLC tax is due, available exceptions, and the filing deadlines every California LLC owner should know.
Disclaimer This article provides general information for educational purposes only. It is not legal advice, does not create an attorney-client relationship, and should not be relied upon as a substitute for consultation with a qualified attorney. Laws vary by state, and individualized guidance is recommended.
If you’re launching a business in California, one of your first financial obligations may be the state’s annual franchise tax. While many business owners still expect a first-year exemption, the rules have changed.
Yes. California LLCs formed on or after January 1, 2024, are generally required to pay the $800 annual franchise tax during their first taxable year. Understanding when the tax is due—and whether any exceptions apply—can help you avoid unnecessary penalties and interest.
The End of the AB 85 Exemption
Confusion surrounding the first-year franchise tax often comes from Assembly Bill 85 (AB 85).
Between 2021 and 2023, qualifying newly formed LLCs received a temporary first-year exemption.
That exemption expired after December 31, 2023.
As a result, California LLCs formed today generally owe the minimum franchise tax during their first year of operation.
LLCs vs. Corporations
Entity Type | First-Year Minimum Tax |
|---|---|
California LLC | Generally $800 due |
California C Corporation | First-year minimum tax waiver may apply |
California S Corporation | First-year minimum tax waiver may apply |
California LLC
Generally $800 due
California C Corporation
First-year minimum tax waiver may apply
California S Corporation
First-year minimum tax waiver may apply
This difference is one factor some founders consider when choosing an entity structure.
When Is the $800 Due?
The annual franchise tax is generally due by the 15th day of the fourth month after your LLC is formed.
Example Timeline
LLC Formation Date | $800 Tax Due |
|---|---|
January 1 | April 15 |
March 10 | July 15 |
July 5 | October 15 |
October 1 | January 15 (following year) |
January 1
April 15
March 10
July 15
July 5
October 15
October 1
January 15 (following year)
The payment is typically submitted using FTB Form 3522.
The obligation generally exists even if:
- Your LLC has not earned income.
- Your business has not yet opened.
- You have not begun actively operating.
Does the Fee Increase as Revenue Grows?
Yes.
The $800 franchise tax is only the minimum amount.
LLCs with sufficient California income may owe an additional LLC fee.
Additional LLC Fee Threshold
California Income | Additional LLC Fee |
|---|---|
Less than $250,000 | No additional LLC fee |
$250,000 or more | Additional LLC fee may apply (reported using FTB Form 3536) |
Less than $250,000
No additional LLC fee
$250,000 or more
Additional LLC fee may apply (reported using FTB Form 3536)
The estimated LLC fee is generally due by the 15th day of the sixth month of the taxable year.
The “Back-to-Back” Payment Trap
Businesses formed late in the calendar year sometimes face two franchise tax payments within a relatively short period.
Example
Event | Approximate Timing |
|---|---|
LLC formed | October |
First $800 payment | January |
Second annual payment | April |
LLC formed
October
First $800 payment
January
Second annual payment
April
Planning ahead can help prevent unexpected cash-flow issues.
The 15-Day Exception
California provides a limited exception for certain year-end formations.
An LLC may avoid the first-year franchise tax if:
- Its first taxable year lasts 15 days or fewer, and
- It conducts no business during that period.
This exception generally applies only under very specific circumstances.
Short-Form Cancellation
Businesses that never became operational may qualify for California’s Short Form Cancellation process.
Typical eligibility requirements include:
- Formed within the previous 12 months.
- No business activity.
- No outstanding liabilities.
- Assets fully distributed (or none existed).
- Required dissolution approval obtained.
Businesses that qualify may avoid ongoing franchise tax obligations.
Ongoing Compliance Requirements
For a full startup budget, review the complete California LLC cost breakdown.
Paying the $800 franchise tax is only one part of maintaining a California LLC.
Annual Filing Requirements
Requirement | Deadline |
|---|---|
FTB Form 568 | Annually |
Initial Statement of Information | Within 90 days after formation |
Biennial Statement of Information | Every two years |
Franchise Tax Payment | 15th day of the fourth month |
FTB Form 568
Annually
Initial Statement of Information
Within 90 days after formation
Biennial Statement of Information
Every two years
Franchise Tax Payment
15th day of the fourth month
Missing the Statement of Information filing can result in a $250 penalty, making it one of the most common—and avoidable—compliance mistakes.
First-Year Compliance Checklist
Before the end of your first year, make sure you’ve completed the following:
Task | Completed? |
|---|---|
Form California LLC | ☐ |
Pay $800 franchise tax (FTB Form 3522) | ☐ |
File Initial Statement of Information | ☐ |
Determine whether additional LLC fee applies | ☐ |
File Form 568 | ☐ |
Monitor annual compliance deadlines | ☐ |
Form California LLC
☐
Pay $800 franchise tax (FTB Form 3522)
☐
File Initial Statement of Information
☐
Determine whether additional LLC fee applies
☐
File Form 568
☐
Monitor annual compliance deadlines
☐
Conclusion
California’s temporary first-year franchise tax exemption has ended for newly formed LLCs.
To remain compliant, business owners should budget for the $800 minimum franchise tax, monitor the fourth-month payment deadline, file required annual tax returns, and submit timely Statements of Information to avoid unnecessary penalties.
Understanding these obligations early allows you to focus on building your business instead of resolving preventable compliance issues.
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