Updated August 14, 2026. Quick answer: California taxes an S corporation’s income at 1.5% and charges a minimum of $800 whether you profit or not, which pushes the break-even up by about $6,208 of profit — from $104,858 to $111,066 on the same assumptions. The floor of $800 is the binding number until the taxed income passes $53,333. There is a first-year waiver, and it is narrower than it sounds.
The rate, from the statute
Electing S status federally does not exempt the corporation in California. It changes the rate.
“(1) The tax imposed under Section 23151 or 23501 shall be imposed at a rate of 1 1/2 percent rather than the rate specified in those sections.”
Cal. Rev. and Tax. Code § 23802(b)(1)
And the minimum survives the election explicitly.
“(c) An “S” corporation is subject to the minimum franchise tax imposed under Section 23153.”
Cal. Rev. and Tax. Code § 23802(c)
“corporations subject to the minimum franchise tax shall pay annually to the state a minimum franchise tax of eight hundred dollars ($800)”
Cal. Rev. and Tax. Code § 23153(d)(1)
The Franchise Tax Board states the same two numbers on its own S corporation page.
“We tax every S corporation that has California source income 1.5%.”
California Franchise Tax Board, S corporations (last updated 05/28/2026)
Which of the two you actually pay
You pay the greater of the two, so the $800 minimum is the operative number until 1.5% of the taxed income exceeds it — at $53,333. Below that, the election costs a flat $800 in California no matter how small the business is, in a loss year as much as a profit year.
On a $120,000 profit with a $60,000 salary, the 1.5% applies to the income left after the salary and the employer’s payroll tax, and the bill is $831. Against a federal-only saving that page puts at $1,951, California takes $831 of it back, leaving $1,120.
What it does to the break-even
Same salary, same payroll cost, same marginal rate — only the state changes.
| Marginal rate | No entity tax | California | Difference |
|---|---|---|---|
| 12% | $94,261 | $100,208 | $5,947 |
| 22% | $104,858 | $111,066 | $6,208 |
| 24% | $107,090 | $113,353 | $6,263 |
The shift is roughly the size of the minimum tax plus the rate on the distribution, and it is stable across marginal rates because California’s charge does not depend on your bracket. The federal break-even calculator has California as an option if you want to vary the rest.
The first-year waiver, and its limit
“(1) Notwithstanding subdivision (a), every corporation that incorporates or qualifies to do business in this state on or after January 1, 2000, shall not be subject to the minimum franchise tax for its first taxable year.”
Cal. Rev. and Tax. Code § 23153(f)(1)
FTB states it in its own words for S corporations.
“We waive the minimum tax on newly formed or qualified S corporations filing an initial return for their first taxable year”
California Franchise Tax Board, S corporations (last updated 05/28/2026)
What is waived is the minimum, not the tax.
“Any first-year net income is still subject to the 1.5% tax rate”
California Franchise Tax Board, S corporations (last updated 05/28/2026)
And the statutory exemption carries an exclusion list that is worth reading before assuming it reaches you.
“This subdivision shall not apply to limited partnerships, as defined in Section 17935, limited liability companies, as defined in Section 17941”
Cal. Rev. and Tax. Code § 23153(f)(2)
The plain reading is that the first-year exemption is written for corporations and expressly not for limited liability companies as section 17941 defines them. An LLC that has elected S treatment is in both categories at once, and we did not find a Franchise Tax Board statement settling that specific case — so this page does not settle it either. Ask before relying on a first-year waiver for an LLC.
What else California charges either way
- An LLC that does not elect anything still pays the $800 annual tax and, above a revenue floor, the LLC fee on gross receipts. The comparison on this page is between structures that both already pay California something: what an LLC costs in California.
- The Secretary of State statement of information is due on its own cycle, with its own penalty, and is unaffected by the election.
- Closing the entity does not close the tax account. The minimum accrues until the dissolution is effective: how dissolution works here.
What is not modelled
- No California personal income tax is modelled. The income flows through to your California return as well, and that tax is the same order of magnitude as everything on this page.
- The elective pass-through entity tax is not modelled.
- Apportionment is ignored. A business with income inside and outside California divides it under its own rules before the 1.5% applies.
- Financial corporations pay a higher rate under the same section and are not covered here.
- The break-even figures inherit every simplification of the federal calculator, including a single marginal rate and a full qualified business income deduction.
Sources
Every figure on this page is computed from the text quoted below. Each row links the document it was read from, as read on August 14, 2026.
| What it establishes | Source |
|---|---|
| California taxes an S corporation’s net income at 1.5 percent. | Cal. Rev. and Tax. Code § 23802(b)(1) |
| An S corporation is also subject to the minimum franchise tax. | Cal. Rev. and Tax. Code § 23802(c) |
| The minimum franchise tax is $800 a year. | Cal. Rev. and Tax. Code § 23153(d)(1) |
| FTB states the 1.5% rate and the $800 minimum on the same page. | California Franchise Tax Board, S corporations (last updated 05/28/2026) |
| A corporation incorporating or qualifying on or after 1 January 2000 is not subject to the minimum franchise tax in its first taxable year. | Cal. Rev. and Tax. Code § 23153(f)(1) |
| FTB states the first-year minimum-tax waiver for S corporations in its own words. | California Franchise Tax Board, S corporations (last updated 05/28/2026) |
| The waiver is of the minimum tax only — first-year net income still meets the 1.5 percent rate. | California Franchise Tax Board, S corporations (last updated 05/28/2026) |
| That first-year exemption expressly does not reach limited liability companies as defined in section 17941. | Cal. Rev. and Tax. Code § 23153(f)(2) |
| The employer half of OASDI is another 6.2% of the same wages — and an owner-employee pays both halves. | 26 U.S.C. § 3111(a) |
| The 2026 OASDI contribution and benefit base is $184,500. | SSA, Cost-of-Living Increase and Other Determinations for 2026, 90 FR 49047 (Nov. 3, 2025) |
| Reasonable compensation paid to the owner is NOT qualified business income — so every dollar moved from profit to salary is a dollar removed from the 20% deduction. | 26 U.S.C. § 199A(c)(4)(A) |
General consumer information, not financial, tax or legal advice. Federal and state rules are as published by the cited source on 2026-08-14 and change; your own facts govern, and an S-corporation election is a decision to take with a tax professional who has seen your books.
An S-corp election sits on top of an entity that eventually has to be closed properly, and dissolving a corporation in California names the document California requires, the filing fee, and whether a tax clearance gates it.
California is one of fifteen states this site has checked for a genuine S-corp-specific state rule; the others are here: