Do You Have to Pay the $800 California LLC Fee Every Year?
Yes. Every year. Whether you made money or not. This is the part nobody mentions when they're walking you through how to form an LLC in California, and it catches people off guard in ways that are genuinely expensive.
The $800 is California's annual minimum franchise tax, and it applies to virtually every LLC registered to do business in this state. It is not a one-time formation cost. It is not a fee you pay only in profitable years. It is a standing obligation that begins the moment your LLC exists and does not stop until you formally dissolve it.
The $800 Fee Is Not Optional, and Nobody Warned You
The legal authority for this is the Revenue and Taxation Code, and the Franchise Tax Board enforces it without much sympathy. If your LLC is registered in California or doing business in California, you owe $800 per year, minimum. The form is FTB Form 568, and for multi-member LLCs it is due March 15. Single-member LLCs follow the same annual schedule. The calendar does not care whether your business had a slow year.
What makes this particularly frustrating is that the $800 is a floor, not a cap. If your LLC earns more than $250,000 in gross receipts, California adds an additional fee on top of the franchise tax. At $250,000 to $499,999, that additional fee is $900. At $500,000 to $999,999, it is $2,500. At $1,000,000 to $4,999,999, it is $6,000. The $800 minimum is what you pay when your LLC is small or dormant. As your revenue grows, the number grows with it.
This is not a secret, but it is routinely omitted from the enthusiastic "start your LLC today" content that populates the internet. The people selling you formation services have no financial incentive to explain the ongoing cost structure. Your job is to understand it before you file, not after your first FTB notice arrives.
The penalty for not paying is not a gentle reminder. The FTB will assess penalties and interest, and if the balance goes unpaid long enough, the FTB can suspend your LLC. A suspended LLC cannot legally conduct business, cannot sue to enforce a contract, and cannot defend itself in court with full standing. That last consequence is the one that tends to get people's attention.
One more thing: the $800 is not deductible as a business expense on your California return in the same way other expenses are. Your CPA can walk you through the specifics of how it flows on Form 568, but do not assume it washes out cleanly at tax time. It often does not.
How to Form an LLC in California: What the Process Actually Costs
The formation itself is straightforward. You file Articles of Organization (Form LLC-1) with the California Secretary of State. As of 2025, this is done online only. The filing fee is $70. That is the entire cost of creating the entity.
Within 90 days of formation, you must file a Statement of Information (Form LLC-12). That filing costs $20. If you miss the 90-day window, the penalty is $250, which is twelve times the cost of the filing itself. Set a calendar reminder the day you form your LLC. This is not a complicated step, but it is one that people forget because they are busy building a business and assume the paperwork is behind them.
Once you have your LLC number from the Secretary of State, you get your EIN from the IRS. This is free and takes roughly ten minutes at irs.gov. Without an EIN, you cannot open a business bank account, cannot hire employees, and cannot properly establish the separation between your personal and business finances that makes the LLC protection meaningful in the first place. The EIN is not optional, and the fact that it is free does not make it less important.
The total hard cost of formation, if you do everything correctly and on time, is $90. The $70 Articles of Organization filing plus the $20 Statement of Information. Everything else, including the $800 annual franchise tax, is an ongoing operating cost, not a formation cost. Conflating the two is how people end up surprised by a bill they should have planned for.
If you are asking how to form an LLC in California step by step, the honest answer is: the steps are not the hard part. The steps are simple. The hard part is understanding what you are agreeing to maintain once the entity exists, and whether the entity structure you are forming actually serves your tax situation.
The Year-One Exception That Saves You $800 (and the Fine Print That Takes It Back)
California does have a first-year exemption. If your LLC is formed on or after January 1, 2021, you do not owe the $800 franchise tax for the taxable year in which you form the LLC. This was a legislative change designed to reduce the upfront cost burden on new businesses, and it is real.
The exemption applies to the first taxable year only. Starting in year two, the $800 is due. No exceptions, no grace period, no "but I only made $40,000" adjustment. The second-year payment is often the one that surprises people, because they formed their LLC late in a calendar year, enjoyed the exemption, and then owe $800 again only a few months later when the new tax year begins.
The fine print is this: the exemption applies to the franchise tax, not to the gross receipts fee. If your LLC generates more than $250,000 in its first year, you still owe the additional fee on top of the exemption. The exemption saves you the $800 floor. It does not exempt you from the tiered fee structure above that floor.
There is also a timing trap that catches people who form their LLC in December. You form in December, you are exempt for that tax year. January arrives, you are in year two, and you owe $800 for a year in which your LLC may have been operational for only a matter of weeks. The FTB does not prorate the franchise tax based on how long you were actually in business during the year. You either owe it for the year or you do not.
The practical advice is simple: if you are planning to form your LLC in the fourth quarter of the year, understand that your second-year $800 obligation arrives faster than you expect. Budget for it before you file.
When the $800 Becomes the Least of Your Problems
The $800 annual franchise tax is a fixed, predictable cost. It is annoying, but it is plannable. What is not plannable is what happens when people form an LLC without thinking through the tax election that goes with it.
A single-member LLC is a disregarded entity by default. All income flows directly to your personal return and is subject to self-employment tax, which is 15.3% on the first $176,100 of net self-employment income in 2025. For someone earning $400,000 through their LLC, the self-employment tax exposure alone dwarfs the $800 franchise tax by a factor of many times over. The structure you choose at formation has tax consequences that compound every single year you are in business.
California also imposes a 1.5% franchise tax on S-corps, and if you are considering an S-corp election to reduce self-employment tax, you need to understand that the $800 minimum still applies and that California's treatment of S-corp income is not identical to federal treatment. The One Big Beautiful Bill Act passed federally in 2025 restored 100% bonus depreciation and raised the SALT deduction cap to $40,000 for incomes under $500,000. These federal changes affect how your LLC's income flows to your 1040. None of them change what you owe the FTB.
The other problem people create for themselves is forming the LLC and then treating it like a personal account. The corporate veil exists under Corp. Code § 17703.04, and it can be pierced if you do not maintain genuine separation between your personal and business finances. That means a dedicated business bank account, no personal expenses run through the business, and consistent documentation of the entity's activities. The LLC protects you from personal liability only if you treat it like a separate legal person, because legally, it is one.
People ask whether it is worth having an LLC in California given the $800 annual cost. The answer depends entirely on what you are protecting and what your income looks like. For someone earning $80,000 a year with minimal liability exposure, the cost-benefit analysis is different than for someone earning $800,000 with employees, contracts, and intellectual property at stake. The LLC is not a universal answer. It is a tool, and like any tool, its value depends on whether it is the right one for the job.
California LLC taxation is one of the few areas where the formation decision and the ongoing cost structure are completely inseparable, and getting one wrong makes the other worse.
If you are ready to form your LLC correctly, understand what you are actually committing to, and make sure the entity structure fits your income, book a paid intake with Delina. This is not a free call. It is a focused, strategic session with an attorney who has read everything above and has specific opinions about your situation.
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