California LLC Taxes
California is home to several major cities and industries across its vast and diverse geographies, making it a popular spot for new businesses. But many business owners may find it challenging to understand business taxes and quirks unique to California, like the annual tax and LLC fee.
Regardless of the size of your business, if you operate a limited liability company (LLC) in California, you will need to ensure you stay up to date on your finances and pay federal, state, and local taxes. Our guide will help you understand which taxes you will need to pay for your California LLC.
Recommended: Schedule a free consultation with an accountant to stay on top of your taxes.
California Annual Franchise Tax and California LLC Fees
California is unique in its requirement that LLCs pay a set franchise tax fee as well as an estimated fee each year to the State of California Franchise Tax Board. These taxes allow your business to operate in the state of California.
All LLCs in California must pay the $800 annual franchise tax each year by April 15 or by the 15th day of the fourth month of your taxable year.
LLCs that have over $250,000 in gross annual receipts must also pay an estimated LLC fee, which ranges from $900–$11,790, depending on revenue.
How to Pay the California Annual Franchise Tax
Form FTB 3522
The annual franchise tax form, called the LLC Tax Voucher, is filed and paid using Form FTB 3522. No matter your LLC’s revenue, the annual tax is $800.You can file and pay online on the State of California Franchise Tax Board’s website or submit Form FTB 3522 by mail.
The due date each year is April 15. LLCs established between January 1, 2021, and January 1, 2024, are not required to pay the annual franchise tax during their first tax year.
How to Pay the California LLC Fee
Form FTB 3536
The LLC fee is filed with the State of California Franchise Tax Board using Form FTB 3536. This is not required for LLCs with a total annual California income below $250,000.
For LLCs that make $250,000 or more in California within a year, you must file Form FTB 3536 and pay a fee based on your revenue.
- LLCs that make $250,000–$499,999 must pay $900
- LLCs that make $500,000–$999,999 must pay $2,500
- LLCs that make $1 million–$4,999,999 must pay $6,000
- LLCs that make $5 million or more must pay $11,790
The LLC fee can be filed and paid online on the State of California Franchise Tax Board website or by filing a hard copy of Form FTB 3536. For eligible LLCs, the due date is June 15th each year.
Reporting LLC Income Using Form 568
Each year, California LLCs must also file Form 568, also known as LLC Return of Income. There are no payments associated with this form. Instead, it is essentially a tax form that accounts for all LLC income, paid estimated and annual franchise taxes, and other tax and financial information.
The LLC Return of Income is due April 15 each year. To view the form or learn more, check out the State of California Franchise Tax Board website.
California LLC Taxes Owed
LLCs benefit from pass-through taxation, meaning the business’s profits pass-through to the members’ individual tax returns. However, California does require LLCs to pay tax to the state in the form of an annual franchise tax and, if applicable, an estimated LLC fee. In California, LLC owners can expect to pay the following taxes:
Any LLC within the United States has to pay federal income taxes and federal self-employment taxes. This does not change on a state-by-state basis. These taxes are reported on your Form 1040.
Federal Self-Employment Taxes
All LLC members must pay self-employment taxes on their share of the LLC’s profits. This is true for all kinds of LLCs, including single-member LLCs and multi-member LLCs. The self-employment tax rate is 15.3%.
Federal Income Taxes
While cutoffs for individual tax brackets and the percent owed will vary each year, your annual federal income taxes change based on your tax bracket.
California State Taxes
Since California is one of the states that requires a franchise tax in order for an LLC to operate, there are a few additional state taxes unique to California, in addition to income and sales tax.
California Franchise Tax
LLCs in California must pay $800 to the State of California Franchise Tax Board each year in order to continue operation. This is known as the annual tax.
LLCs formed after January 1, 2021, and before January 1, 2024, are exempt from paying this tax during their first year.
More information is available on the State of California Franchise Tax Board website.
California LLC Fee
While not a tax, LLCs that earn more than $250,000 in California must also pay an estimated fee, ranging from $900 to $11,790, depending on their projected income.
If your LLC makes less than $250,000 in California income, you do not need to pay the estimated LLC fee.
More information is available on the State of California Franchise Tax Board website.
California Income Taxes
California’s personal income tax rates are broken up into nine brackets, meaning depending on how much you make, you can be taxed at 1% to 13.3%.
Taxes are due each year by April 15. To calculate your tax or determine your tax bracket with tax calculators and tables, visit the State of California Franchise Tax Board website.
California Sales and Use Tax
The state of California’s sales tax is 7.25%. Counties, cities, and local jurisdictions can create additional sales tax. Some areas of California have a sales tax as high as 10.75%.
To determine your local sales and use tax rate, check out this searchable map on the California Department of Tax and Fee Administration website.
Register for a California Sales and Use Tax Permit
In order to sell taxable goods or services in the state of California, you must register for a seller’s permit on the California Department of Tax and Fee Administration website.
If your LLC hires employees, it will be required to contribute to the state’s four payroll taxes:
- Unemployment Insurance Tax
- Employment Training Tax
- State Disability Tax
- Personal Income Tax
Unemployment insurance (UI) tax is an employer contribution where the first $7,000 of an employee’s salary is taxed. At first, your LLC will be taxed at 3.4%. After two to three years, when you are considered an established employer, your LLC’s unemployment insurance tax rate will increase at the end of each year until it reaches a maximum of 6.2% or $434 per employee per year.
Employers must also pay an Employment Training Tax (ETT) to fund employee training in certain state industries. The ETT rate changes each year.
Both the State Disability Insurance (SDI) and California Personal Income (PIT) taxes are withheld from employee wages, with the SDI rate changing each year and the PIT changing based on each employee’s Form W-4 or DE-4.
More information about all payroll taxes can be found on the California Employment Development Department website.
Additional State Taxes
California imposes additional taxes on certain industries, such as:
- Cigarettes and tobacco
To view more taxable industries and learn about their fees, see the California Department of Tax and Fee Administration website.
California Local Taxes
Cities and counties can create their own taxes, meaning the local laws, ordinances, and taxes in San Francisco—where there is a 0.38% city income tax—may differ greatly from those in Los Angeles or Sacramento.
Regardless of where you live in California, we recommend you check with your local jurisdiction and ensure that your business obtains the proper local permits and follows any local regulations that may impact your business’s operation.
California LLC Compliance
You must be sure to obey California state and local laws to keep your business compliant and in good standing.
Reporting LLC Income
Each year, your LLC must report its income, information related to the payment of the annual franchise fee and estimated LLC fee, and other financial information in Form 568: LLC Return of Income.
California LLC Statement of Information
Every two years, LLCs in California must file a biennial report, also known as a Statement of Information. This report ensures the state is up to date with the names, addresses, and principal business activities of your LLC and its members or managers.
Note that new LLCs must file an Initial Statement of Information within 90 days of formation.
The Statement of Information can be filed online, by mail, or in person with the California Secretary of State. There is a $20 filing fee.
Your due date is a six-month window based on when you registered your LLC. You can find your filing period on the California Secretary of State website. Late filings or failure to file will result in penalties and could lead to the dissolution of your LLC.
For more information, check out our California LLC Statement of Information guide.
LLC taxes are complex. While our guide can provide you with important information, we recommend you schedule a free consultation with an accountant to ensure that you handle your business taxes correctly.