State Guide
California S Corp Election
California automatically recognizes your federal S Corp election. You do not need to file a separate state election form. Most nonfinancial California S corporations pay a 1.5% franchise tax on net income, while financial S corporations use a 3.5% rate. An $800 minimum generally applies, subject to first-year and qualifying short-period exceptions. These rules change the savings math compared with states that impose no entity-level tax. Whether the election produces net savings depends on reasonable compensation, other wages, QBI limits, payroll and filing costs, and the business's specific facts.
The Key Facts
Verified 19 August 2026 against the California FTB S corporation guidance and business tax rate table.
How the 1.5% Tax Affects Your Savings
In most states, an S Corp is a pure pass-through with no entity-level tax. California is different. The 1.5% franchise tax reduces (but usually does not eliminate) the S Corp savings.
| $150K Net Profit | LLC (Schedule C) | S Corp (CA) |
|---|---|---|
| SE tax / FICA on salary | $21,194 | $11,475 |
| CA franchise tax (1.5%) | $0 | $2,250 |
| Total payroll + entity tax | $21,194 | $13,725 |
| Annual savings from S Corp | $7,469 |
The $800 Minimum
The $800 minimum generally applies regardless of income and is due in the first quarter of the accounting period. California waives it for a newly formed or qualified S corporation's first taxable year. The FTB also describes a waiver when the corporation conducts no California business and the taxable year is 15 days or fewer. First-year net income remains subject to the applicable tax rate.
California-Specific Opportunities
Pass-Through Entity Tax (PTET) under AB 150
California offers an elective pass-through entity tax that allows S Corps to pay state income tax at the entity level, generating a federal deduction that works around the $10,000 SALT cap. If you are above the SALT cap (most owners with income above roughly $100,000), this is a significant planning opportunity. It is a separate annual election made on Form 100S.
EDD Enforcement
California's Employment Development Department requires S Corp officer-shareholders to be treated as employees on payroll. California enforces this more aggressively through EDD audits than most other states. Having your reasonable compensation properly documented is particularly valuable in California.
Common Mistakes
- Thinking you need a separate state election. You do not. California conforms automatically.
- Forgetting the $800 minimum. In years where it applies, a loss does not eliminate the minimum.
- Not running payroll for officer-shareholders. EDD audits catch this.
- Ignoring the PTET opportunity. If you are above the SALT cap, this is free money.
Common questions
Does California require a separate S Corp election?
No. FTB Publication 1060 states that corporations electing federal S status with a California filing requirement are deemed to have made a California S election effective on the same date as the federal election. Terminating the federal election terminates the California one as well.
What does California charge an S corporation?
The greater of 1.5 percent of net income or the 800 dollar minimum franchise tax. The rate is 3.5 percent for S corporations that are banks or financial corporations. The 800 dollar minimum is owed whether the corporation is active, inactive or operating at a loss.
Is the 800 dollar minimum waived in the first year?
For a newly incorporated or qualified corporation, yes, the 800 dollar minimum is waived for the first taxable year. First-year net income is still taxed at 1.5 percent, and the minimum applies from the second taxable year onward.
Related
Our calculator already accounts for the CA 1.5% franchise tax.