California LLCs don't pay $800 Franchise Tax [after 2021] - LLC University

Last updated November 20, 2020

California LLCs don’t pay $800 Franchise Tax (for 1st year) beginning 2021

How to form an LLC in California
This Quick Start Guide is a brief overview of how to form an LLC in California.

Detailed Lessons:

 

California LLC Costs:
California state fee: $70
Statement of information: $20 (every two years)
Annual franchise tax: $800 (every year)

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A California LLC can now legally “avoid” the $800 Annual Franchise Tax (1st year)

California Assembly Bill 85 was signed into law by the governor on June 29th, 2020.

While California Assembly Bill 85 affects multiple aspects of the state budget, we’re focusing on how it affects people forming an LLC in California.

California Assembly Bill 85 changed Section 17935, Section 17941, and Section 17948 of the California Revenue and Taxation Code.

There is now some financial relief for the 1st year for people forming an LLC in California.

California LLCs before Assembly Bill 85:

California LLCs paid an $800 fee within 2-3 months of being approved.

Then they paid that fee again April 15th every year.

LLCs formed later in the year (October – December) ended up with back-to-back payments, totaling $1,600.

California LLCs after Assembly Bill 85:

California LLCs don’t pay an $800 fee for their 1st year (if the LLC is formed after January 1st, 2021).

This completely eliminates the back-to-back $1,600 payment issue!

And it moves an LLC’s first $800 payment 12-16 months after the LLC is approved.

When is my LLC’s franchise tax due?

If your California LLC goes into existence on or after January 1st, 2021 (but before December 31st, 2023), there is no $800 payment due the 1st year.

The first $800 payment is due in the LLC’s 2nd year.

Let’s look at a few examples below.

California LLC franchise tax due dates (after Assembly Bill 85):

LLC approval dateNo payment this yearFirst $800 payment
Any day in 20212021Due April 15th, 2022
Any day in 20222022Due April 15th, 2023
Any day in 20232023Due April 15th, 2024
Any date in 20242024Due 2-3 months after approval

Said another way:

Your first $800 payment is due the year following the year your LLC is approved.

Does my California LLC need to pay franchise tax in the 2nd year?

Yes, it does. Your California LLC needs to pay the $800 franchise tax payment starting in its 2nd year, and continuing onward.

The California LLC franchise tax exemption from Assembly Bill 85 only covers the LLC’s 1st year.

Your California LLC needs to pay the $800 franchise tax payment in its 2nd year and for all years afterward.

Does my California LLC need to file Form 3522 (Limited Liability Company Tax Voucher) in the 1st year?

No, since your California LLC doesn’t need to pay the $800 franchise tax for its 1st year, you don’t need to file Form 3522.

Form 3522 will need to be filed in the 2nd year.

For instructions on filing Form 3522, please see California LLC Annual Franchise Tax.

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 revenue.

If your LLC will not earn that much in total 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.

What’s the goal of Assembly Bill 85 for business owners?

The overall goal of Assembly Bill 85 is to bring in additional tax revenue to the state.

Section 24(b)(1) of Assembly Bill 85 states:

“The goal of this act is to help and reduce costs for first-year California small businesses.

Existing law imposes an Annual Minimum Franchise Tax of $800 on every Corporation, and an Annual Tax of $800 on every Limited Liability Company (LLC), Limited Partnership (LP), and Limited Liability Partnership (LLP), which may be difficult to afford for first-year businesses.

As such, these taxes may stifle economic growth and job creation and may inhibit the formation of many small businesses.”

It may seem counterintuitive to remove fees in order to bring more tax revenue to the state. However, the California Legislature hopes that by removing the $800 Annual Tax on first-year businesses, this will bring in more tax revenue in the future.

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
Founder & Educator, LLC University®
Forming an LLC shouldn't be so complicated. Our step-by-step guide will make the process a breeze – and no complex legal jargon! LLC University® teaches people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your business journey.

18 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. 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

    Reply
    • 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.

      Reply
  2. 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.

    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.

      Reply
  3. 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?

    Reply
    • 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.

      Reply
  4. 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?

    Reply
    • 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.

      Reply
  5. 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

    Reply
    • 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 :)

      Reply
      • 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.

        Reply
        • 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.

          Reply
  6. 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

    Reply
    • 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!

      Reply

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