California LLCs: AB 85 now expired (and $800 fee due 1st year)

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A California LLC must now pay the $800 Annual Franchise Tax (1st year)

From 2020-2023, California Assembly Bill 85 (“AB85”) waived the first year’s $800 Annual Franchise Tax payment for new California LLCs.

Unfortunately, AB85 expired at the end of 2023.

Now, every California LLC must pay the $800 Annual Franchise Tax every year. The first year’s payment is due on the 15th day of the 4th month after the LLC was created. And every year’s payment after that is due on April 15th.

There used to be a law (AB85) that waived the first year’s payment for California LLCs. But it has expired, effective 12/31/2023.

California LLCs formed before December 31 2023:

AB85 still applies to your LLC! You don’t have to pay the $800 Franchise Tax by March 2024.

However, you will have to pay the Annual Franchise Tax every year from 2025 onward.

California LLCs formed after January 1, 2024:

AB85 doesn’t apply to you, and you have to pay the Franchise Tax as usual.

Meaning, there is no more waiver (it’s $800 per year), and the California LLC Annual Franchise Tax is due in the 4th month after your LLC is formed.

For example, if your LLC was approved on June 1, 2024:

  • Your first $800 Annual Franchise Tax is due by September 15, 2024. This pays for the 2024 tax year.
  • Your next $800 Annual Franchise Tax is due by April 15, 2025. This pays for the 2025 tax year.
  • And then it must be filed every year (by April 15) after that.

Is there any way to avoid paying the Annual Franchise Tax?

No, there isn’t. Every California LLC has to pay the $800 Annual Franchise Tax.

If you see any websites talking about the AB85 exemption, don’t be fooled. The AB85 exemption expired in 2023.

The best we can do is offer you a way to avoid paying the Annual Franchise Tax back-to-back. If you form your LLC later in the year, you might end up paying the Annual Franchise Tax “back-to-back” because it’s due a few months after formation and then again in April.

Check out How to Avoid Back-to-back California LLC Tax Payments to learn more about this method.

Note: This method only works if you haven’t formed a California LLC yet. If you already have a California LLC, it won’t work.

Does my California LLC need to file Form 3536 (Estimated Fee for LLCs) in the 1st year?

Yes, your California LLC needs to file Form 3536 and pay an Estimated Fee if it will make more than $250,000 in total projected revenue.

If your LLC will not earn that much in total projected revenue, then you don’t need to file Form 3536 (in the LLC’s 1st year or any year.)

What is the Estimated Fee for California LLCs?

It’s called an “Estimated” Fee because you will need to forecast your LLC’s total revenue. If your LLC will come close (or exceed) $250,000 in total revenue, then you should file Form 3536 and pay the Estimated Fee.

The Estimated Fee begins at $900 and increases depending on your LLC’s estimated income. For more information and instructions, please see California LLC Annual Franchise Tax.

California Franchise Tax Board Contact Info

If you have any questions, you can contact the California Franchise Tax Board (FTB) at 800-852-5711.

Their hours are Monday through Friday from 8am to 5pm, Pacific Time.

  • While hold times can sometimes be long, the FTB has an option to hold your place in line and call you back.
  • You can check how long the wait times are: CA FTB: wait times.
  • There is also a live chat option: CA FTB: live chat.

Matt Horwitz
Matt Horwitz
Matt Horwitz is the leading expert on LLC education, and has been teaching for 15 years. He founded LLC University in 2010 after realizing people needed simple and actionable instructions to start an LLC. He's cited by Entrepreneur Magazine, Yahoo Finance, and the US Chamber of Commerce, and was featured by CNBC and InventRight.
 
Matt holds a Bachelor's Degree in business from Drexel University with a concentration in business law. He performs extensive research and analysis to convert state laws into simple instructions anyone can follow to form their LLC - all for free! Read more about Matt Horwitz and LLC University.

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50 comments on “California – Annual LLC tax exemption (Assembly Bill 85)”

Disclaimer: Nothing on this page shall be interpreted as legal or tax advice. Rules and regulations vary by location. They also change over time and are specific to your situation. Furthermore, this comment section is provided so people can share their thoughts and experience. Please consult a licensed professional if you have legal or tax questions.

  1. This is very helpful. As a foreign registered SMLLC, registered in CA in Apr 2022, my understanding is:
    – I don’t need to pay the $800 LLC Annual Tax for 2022 (due to AB 85)
    – I need to pay the $800 Annual tax for 2023 and file form 568 before Apr 18, 2023

    Can you confirm my understand please? Also, do I need to also file Form 540NR for personal nonresident because I own a SMLLC? Or filing 568 is sufficient?

    Thanks much!

    • Hey KJ, we can’t comment on all the federal and state forms you need to file (we recommend speaking with an accountant), however, yes, you are correct. No need to pay $800 for the 2022 tax year because of AB 85, however, there is an $800 payment due for the 2023 tax year (due by April 15, 2023). Hope that helps and thanks for your understanding.

  2. Hi there! I started my LLC as a single member on 05/11/22 and was exempt from the initial $800 franchise fee. I’m now in the process of dissolution, and my LLC should be terminated within 12 months of starting (I did make revenue however.) Am I eligible to fill out a short form cancellation and avoid the $800 franchise fee for the next taxable year? Or do I need to pay the fee before terminating?

    • Hi Brooklyn, no, you’ll need to pay the $800 for the 2023 tax year, since your LLC existed during a part of this tax year.

  3. Hello, I filed my Articles of Organization in CA on 12/22/22. I believe this would mean I qualify for the first-year exemption of the $800 Annual Tax. Is there any paperwork or form required to fill out in order to receive this exemption, or is there no action required on my part at all until I pay the 2nd year Annual Tax on April 15, 2023?

    • Hi Lauren, you actually get 2 “bonus” years. This is because of the 15-day rule plus AB 85. If your LLC went into existence in 2022, but after December 17th, it’s as if it didn’t exist (for CA tax purposes) until January 1, 2023. And therefore, you’d be exempt from paying the $800 for the 2023 tax year (which would be due April 15, 2023). Instead, you’ll make your first $800 payment in 2024 (due by April 15th). And no, there is no action required to receive this exemption. You simply just don’t pay it. Hope that helps!

  4. Hi,
    I started my LLC on 12/22/2022 and filed articles of organization on 1/5/2023. I haven’t done any business so far. With 15 day rule and first-year annual tax exception with Assembly bill 85, Do I pay my $800 before April 15th, 2024? Or should I pay on April 15th of this year?
    Thanks!

    • Hi Kavitha, I’m a little confused by what you mean by “I started my LLC on 12/22/2022 and filed articles of organization on 1/5/2023“. How did you start your CA LLC before the Articles of Organization was approved? What date was your Articles of Organization approved?

  5. LLC was formed in Delaware in 2022 but never registered with the CA SOS. If the entity files a 2022 Form 568, I’m assuming they will need to pay the $800 for 2022 since the LLC never registered with the CA SOS. Thanks

    • Hi Kevin, I don’t know the answer to that. I’d check with the California Franchise Tax Board. Thank you for your understanding.

  6. If a California LLC was formed in November 2022 and is being dissolved Feb 2023, does the LLC still need to pay the $800 for 2023?

  7. A new LLC formed in California (after AB 85) does not own the $800 fee for its first year of formation. If the LLC’s gross income is $300,000 in its first year of business, does it owe $900 on the excess over $250,000. grossed in that first year of business?

    • Hi Bob, yes, an LLC with over $250,000 in gross receipts sill needs to file the LLC Estimated Fee.

  8. Mi llc fue creada el 10/21/2021, en el 2022 no tenia que pagar el annual report?, solo pagaría ahora en el 2023?

    Gracias

  9. For example I create an LLC by 1/31/223. The $800 tax will be due by April 2024. What happens if LLC is terminated/dissolve by December 2023? Is the $800 tax still owed on April 2024?

    Also, if my LLC made $1000 only in revenue, is this tax still applicable? Is there a minimum income/profit/revenue?

    • Hi Carl, in that scenario, if the LLC was dissolved before the end of 2023, there’d be no $800 payment due (but a return would still need to be filed). And yes, the tax is  applicable regardless of how much money the LLC made, or didn’t make.

  10. Our Articles of Organization were filed in July 2020. I have filed and paid the Statement of Information fee, but because the organization has and never has had any! income, I have not paid the annual $800 fee. s this a problem?

    • Hi Derry, yes, you’ll need to pay this (and a late fee) when you file the LLC Return of Income. We recommend working with an accountant to make sure you’re all up to date.

  11. Hi Matt,

    I was not aware of AB85 when I formed my LLC in 2022 so I paid the $800 fee in 2022 when I didn’t have to based on AB85. Is there a way for me to get exempt from this payment in 2023? Or get a refund? What can I do so I could take advantage of this when I’ve paid when I didn’t have to? Thanks.

    Stephen

    • Hi Stephen, I recommend speaking with an accountant. I’m sure there’s a way to account for it on your Form 568, LLC Return of Income.

  12. I started training (education) for a career in Real Estate on April 1, 2022. I went to several trainings/classes & started paying a monthly subscription for R.E. software. I haven’t made any money (as of Nov. 30, 2022). I want to file my LLC on Dec 19, 2022. I was assured it would be approved by CA Franchise Board before Dec. 31, 2022. I will have sustained a loss of over $20,000 by Dec. 31, 2022. I was told by an attorney that I could “carry through” my losses from 2022 into 2023 if my LLC was approved by Dec. 31, 2022 and claim them on 2022 tax return (submitted April 15, 2023). Since the losses were incurred BEFORE the LLC was approved, is this advice correct?

    • Hi Donna, we’re not 100% as we’re not a tax firm. We recommend checking with an accountant.

  13. I started my LLC in December 31, 2020, does that mean I have to pay $1600? It states registration was December 31, 2020 and the SI-COMPLETE as February 1, 2021.

    • Hi Connie, you don’t pay $1,600 (because of the 15-day rule). Your LLC also doesn’t file a Form 568 for 2020 (would be due April 15, 2021) because of the 15-day rule.

      But because your LLC went into existence in 2020, Assembly Bill 85 doesn’t apply and your LLC needs to pay the $800 franchise tax for the 2021 tax year and that is due by April 15, 2021. Hope that helps.

  14. Is it possible to receive a refund for the $800 franchise tax or a waiver to pay 2021 Franchise Tax? I set up my LLC in June 2020, technically I am still in my first year of business. Thank you :)

    • Hi Jasmine, not that we’re aware of. You can call the Franchise Tax Board (800-852-5711, 8:00am – 5:00pm, M-F) and ask though. Your LLC owes/owed an $800 payment for the 2020 tax year (due Sept. 2020) and it owes an $800 payment for the 2021 tax year (due April 2021). The LLC must also file Form 568 this April, 2021. We recommend working with an accountant.

  15. Hi Matt. I setup my LLC on January 30, 2021. The California business name search is showing 2/1/2021 and a status of Active. I was curious if the back to back $800 payments are both forgiven with the AB85 bill? I just want to be sure I pay the necessary fee. Thank you!

    • Hi Ashley, you are safe. Because your LLC went into existence in 2021, there are no back-to-back payments to worry about. Your LLC doesn’t owe a franchise tax payment for 2021. The first $800 will be due by April 15th, 2022. Hope that helps :)

  16. I just filed my LLC on 12/22/20, with the understanding that it would take 15 days to process. Needless to say it did not and my LLC is now active. Will I be required to pay the $800 for 2021? If so Is there a way to cancel the LLC, and reinstate in 2021?

    TIA

    • Hi Terri, yes, your LLC will owe an $800 payment due by April 15, 2021 (paying for the 2021 year). And yes, if you cancel the LLC now and form another LLC (with the same name) in 2021, your LLC won’t have to make an $800 payment in 2021. Instead, its first $800 franchise tax payment will be due by April 15, 2022.

      How to cancel your California LLC:
      You can cancel your LLC by filing online with the California Secretary of State. Their online filing system is called BizFile. Click “File Online”. On the next page, click “LLC Termination” and then follow the prompts.

      When you go to refile in 2021, you can use the exact same LLC name, since once an LLC in cancelled in California, it looses the exclusive rights to its name. Hope that helps!

  17. Hi, Thank you for writing about such important tax updates. My question is if I start an LLC say the end of the year Dec 15th-December 30th, does this new rule apply or I have to wait until January 1st?

    Thank you in advance

    • Hi Rosario, you’re very welcome. In order for the new rule to apply, your California must go into existence in 2021. You can either wait until January to file, or you can file in December and list a Future File Date of 1/1/2021 on the California LLC Articles of Organization. If you are going to use the Future File Date of 1/1/2021, you’ll need to file online (as opposed to filing by mail). Hope that helps :)

      • Hi Matt, In above scenario for Rosario, since CA LLC is registered within last 15 days of calendar year 2020, $800 franchise tax for 2020 is not required as its considered to not exist for 2020.

        However $800 franchise tax for 2021 tax year will be due in Apr 2021 because CA LLC application date is in last 15 days of Dec 2020? Please clarify.

        • Hi SJ, you are correct regarding the 15-day rule and that the LLC would not owe a franchise tax payment for 2020. However, Rosario is asking about Assembly Bill 85 and the new rule: LLCs that go into existence between 1/1/2021 and 12/31/2023 don’t pay franchise tax for their 1st year. So if an LLC went into existence in 2020 between December 17th and December 31st, while there would be no $800 payment due March 15, 2021 (paying for 2020) because of the 15-day rule, there will be an $800 payment due April 15, 2021 (paying for 2021). On the other hand, if the LLC goes into existence in 2021, there is no payment due on April 15, 2021. The first $800 payment will be due April 15, 2022. Hope that helps.

  18. I didn’t see this resource before I registered my Delaware LLC (formed in March, 2020) in California during the last week of November. It looks like not only do I now have to pay $800 for 2020 but I also missed out on the new legislation removing the $800 first year cost. Is there any way to undo or remedy this?

    • Hi Chris, unfortunately, not that we’re aware of. Since the LLC has been registered to do business for more than 15 days in 2020, it’s responsible for the $800 franchise tax payment (paying for 2020), which is due by February 15, 2021 (if LLC was approved in November 2020). Then the LLC’s 2021 payment is due just 2 months later and is due by April 15th, 2021. Apologies, but hope that helps clarify the situation.

  19. The ca.gov website states that if my tax year is less than 15 days and I did not conduct business, I do not pay the fee the following year.
    Does that mean I can register my LLC as early as December 15 without paying taxes the following year?

    • Hi Seth, December 15th to December 31st is 17 days, so the rule wouldn’t apply then. The 15-day rule kicks in for LLCs formed on or after December 17th. Hope that helps.

  20. Thank you for publishing this site, it’s been a great point of reference starting out.

    Question:
    If I begin the filing process for an LLC in CA today, and postmark the formation for Jan. 1, 2021, will I be eligible for receiving the benefit of the new CA 2021 tax exemption?

    Appreciated, looking forward to your reply.

    • Hi Chris, you’re very welcome! You almost correct. It’s not about the postmark date (the date the letter was sent if you’re filing by mail). It’s about using a Future File Date of 1/1/2021 on the California LLC Articles of Organization. In that way, because the LLC will go into existence in 2021, it doesn’t pay an $800 franchise tax payment in 2021. Its first $800 franchise payment will by due by April 15th, 2022. Hope that helps.

  21. Hi,

    With AB85 would it be possible to then:

    1. Start an LLC during 2021
    2. Dissolve the LLC before end of 2021
    3. Refile for new LLC in 2022 and so on until 2023 to avoid excessive $800 fee

    I ask this, because as a gig worker, $800 is simply oppressive and the LLC name is not really as important as the protection that it simply provides. That being said, it would not be a problem to simply repeat the process yearly to avoid paying said fees.

    Thank you

    • Jim, this is a very interesting question. Yes, that could be done. Keep in mind though that each LLC would file a Form 568 every year in California. You’ll also be getting a new EIN each year, opening and closing a bank account, and making sure any payments or expenses are coming into/going out of the correct bank account.

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