HomeState 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.

Filing in California? Ogden, UT 84201, fax 855-214-7520. Confirm the current IRS destination before sending Form 2553.

The Key Facts

Separate state election required?: No (auto-conforms)
Entity-level tax: 1.5% of net income (3.5% for financial S corporations); $800 minimum generally applies
Annual filing: Form 100S
PTET available?: Yes (AB 150, elective annually)

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 lets an S Corp pay state income tax at the entity level. That payment is a federal deduction for the business, outside the individual cap on state and local tax deductions. The election is available for taxable years beginning before January 1, 2031, and it is made each year on a timely filed original return with form FTB 3804 attached.

Two things changed and both affect the math. The One Big Beautiful Bill Act raised the federal cap to $40,000 for 2025 and $40,400 for 2026, with a phase down that starts above $500,000 of income ($505,000 for 2026) and a scheduled return to $10,000 in 2030. The election now helps most when an owner's state and local taxes exceed that cap, or income sits in or above the phase down range. And for 2026 through 2030, missing the June 15 payment no longer voids the election. The owner's credit is reduced by 12.5 percent of their share of the amount that was due.

Verified 10 November 2026 against the Franchise Tax Board pass-through entity elective tax page and Public Law 119-21.

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.
Skipping the PTET review. Run the numbers each year. The benefit depends on where you sit against the federal cap, and the June 15 payment affects the credit.

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.

Our calculator already accounts for the CA 1.5% franchise tax.