California LLC Fee 2026: The $800 Franchise Tax, Graduated Fee Schedule, and COGS Rule Every LLC Owner Must Know
California LLCs owe two separate charges in 2026: a flat $800 annual franchise tax under R&TC §17941 that applies regardless of revenue, plus a graduated LLC fee under §17942 ranging from $900 to $11,790 based on California-source gross income plus cost of goods sold. As of June 2026, the FTB’s official Tax News explicitly flagged this two-charge structure as a top compliance reminder for Q2. The fee is separate from — and in addition to — any income tax the LLC owes.
Written and reviewed by Adham Abadier, CPA — a California Board of Accountancy licensed Certified Public Accountant (License #158599) and founder of Catalyst CPA Corporation, serving LLC owners throughout Moreno Valley, Riverside, and the broader Inland Empire.
⚠️ Q2 Form 941 is 39 days away
The Q2 Form 941 (Employer’s Quarterly Federal Tax Return) is due July 31, 2026. Failure to file on time triggers penalties of 2–15% of unpaid tax under §6651. If your LLC has employees, this deadline overlaps with your LLC fee planning window — don’t let one crowd out the other.
Key Takeaways
- ✅ Every California LLC pays a flat $800 annual franchise tax under R&TC §17941 — even with zero revenue.
- ✅ LLCs with $250,000+ in California gross income also owe a graduated fee up to $11,790 under R&TC §17942.
- ✅ The LLC fee base = gross income plus cost of goods sold (COGS) — not net profit (FTB Tax News, June 2026).
- ✅ The estimated fee is due on Form 3536 by June 15 for calendar-year LLCs; the annual tax is paid on Form 3522.
- ✅ The LLC fee is a deductible state tax expense on the federal return — it reduces your taxable income dollar-for-dollar.
- ✅ An LLC with $1.1M in California gross income + $300K COGS faces a fee based on $1.4M — landing in the $6,000 tier, not the $2,500 tier.
- ✅ Underpaying the estimated fee on Form 3536 triggers a non-deductible penalty under R&TC §19131.
The Two-Charge System: $800 Franchise Tax vs. the Graduated California LLC Fee
The $800 Annual Franchise Tax — Every California LLC Pays This
Under R&TC §17941 (ftb.ca.gov), every LLC organized in California, registered to do business in California, or actively doing business in California owes $800 (R&TC §17941, California Franchise Tax Board) per year. This charge applies whether your LLC earned $1 or $1 million. It is paid on Form 3522, due on the 15th day of the 4th month of the taxable year — April 15 for calendar-year filers. There is no waiver based on losses, inactivity, or new-LLC status (the first-year exemption that existed under AB 85 expired January 1, 2024). Many Inland Empire LLC owners are caught off-guard when their brand-new Moreno Valley cleaning or contracting LLC gets a bill before it has even landed its first client. If you are still deciding whether to form an LLC in California, understanding this mandatory baseline charge is step one.
The Graduated LLC Fee — Triggered at $250K in California Gross Income
This is the charge that confuses most LLC owners. Under R&TC §17942 (ftb.ca.gov), LLCs with California-source gross income at or above $250,000 (R&TC §17942, FTB) owe an additional annual fee that tops out at $11,790. The fee is reported on Form 568 (LLC Return of Income) and an estimated payment is due on Form 3536 by June 15 for calendar-year filers. The FTB’s June 2026 Tax News reminded practitioners that this fee is calculated on gross income plus cost of goods sold — not on net income, and not on revenue alone. A product-based LLC that nets very little but moves significant inventory can owe a surprisingly large fee. Our CPA services team catches this miscalculation regularly during new-client onboarding calls.
The 2026 California LLC Fee Schedule in Plain Numbers
| California Gross Income (+ COGS) | LLC Fee (§17942) | Total with $800 Franchise Tax |
|---|---|---|
| Under $250,000 | $0 | $800 |
| $250,000 – $499,999 | $900 | $1,700 |
| $500,000 – $999,999 | $2,500 | $3,300 |
| $1,000,000 – $4,999,999 | $6,000 | $6,800 |
| $5,000,000 and above | $11,790 | $12,590 |
Source: California Franchise Tax Board — LLC filing requirements; R&TC §17942.
Did your LLC cross the $250K gross income line this year — or land right on the edge of a higher tier? The difference between the $500K and $1M bracket costs you $3,500. A 30-minute review with Adham can confirm your tier before your June 15 estimated fee payment and keep you out of a costly underpayment penalty.
📞 (951) 223-1826 | Book a free 30-min diagnostic →
The COGS Rule That Catches Product-Based LLCs Off-Guard
Why the California LLC Fee Base Is Larger Than You Think
The FTB’s June 2026 Tax News explicitly stated: “California income for LLC fee purposes is gross income plus the cost of goods sold, that are paid or incurred in connection with the trade or business of the taxpayer.” This is the single most misunderstood rule in California LLC taxation. Many owners assume the fee is based on net profit or on gross receipts after COGS — but COGS is added back to gross income for fee-calculation purposes, not subtracted.
A Concrete Inland Empire Example
Consider a Riverside-based LLC that distributes building supplies throughout the Inland Empire. In 2026, the LLC has:
- Gross sales (revenue): $820,000
- Cost of goods sold (COGS): $390,000
- Gross income (revenue minus COGS): $430,000
- LLC fee base (gross income + COGS): $430,000 + $390,000 = $820,000
At $820,000, the LLC fee base falls in the $500,000–$999,999 bracket — a $2,500 fee. But many owners would mistakenly look only at their $430,000 gross income figure and conclude they owe only $900. That miscalculation creates a $1,600 underpayment (R&TC §17942) and triggers a non-deductible penalty under R&TC §19131. Proper outsourced bookkeeping that tracks gross-to-net revenue and COGS separately is the first line of defense against this error.
What Counts as California-Source Income for the LLC Fee
For LLCs doing business in multiple states, only California-source income is used in the fee calculation. California follows an apportionment formula based on the sales factor for most industries. An LLC headquartered in Moreno Valley but with customers in Nevada and Arizona does not include out-of-state revenue in the §17942 fee base — but the FTB’s standard for “doing business in California” is broad, and any LLC with $73,178 (FTB threshold, 2026) or more in California-source sales meets the doing-business test and must file Form 568. LLCs with multi-state operations may also want to review a tax planning strategy to ensure proper apportionment is applied before filing season.
“The fee schedule looks simple until you apply the COGS add-back rule. I’ve seen product-based LLCs in the IE jump an entire fee tier — from $900 to $2,500 — simply because their accountant forgot to add cost of goods sold back into the fee base. That’s a fixable mistake if you catch it before you file Form 3536, and a painful one if you catch it during an FTB audit.”
How to Calculate, Estimate, and Pay the California LLC Fee in 2026
Step-by-Step: Calculating Your 2026 LLC Fee
- Identify all California-source revenue for the 2026 tax year — including product sales, service income, and rental income attributable to California.
- Add back cost of goods sold that are paid or incurred in connection with your California trade or business.
- Locate your tier in the §17942 schedule (see table above) using the combined gross income + COGS number.
- Pay the estimated fee on Form FTB 3536 by June 15 (calendar-year LLCs). The FTB requires you to estimate based on projected current-year income.
- File Form 568 (LLC Return of Income) by the return due date (typically April 15 with extensions available to October 15), reconciling the estimated fee paid to the actual amount owed.
- Pay any underpayment with the Form 568 filing. Overpayments are credited or refunded.
How to Record the California LLC Fee in QuickBooks Online
The LLC fee paid under §17942 is a deductible state tax expense on the federal return (IRC §164). In QuickBooks Online, record both the $800 annual franchise tax and the graduated LLC fee to the “Taxes Paid” or “State and Local Tax” expense account — not to owner’s draw, not to penalties. The $800 is deductible; the $11,790 top-tier fee is deductible. Penalties for underpayment under R&TC §19131 are NOT deductible. Getting the chart of accounts right matters: misclassified LLC fees overstate owner distributions and create problems at tax time. If your books need a tune-up before filing Form 568, our QuickBooks cleanup services team can get them tax-ready fast.
Frequently Asked Questions: California LLC Fee 2026
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Get Your 2026 California LLC Fee Right — Before the FTB Does It for You
The California LLC fee 2026 structure is one of those compliance items that seems straightforward until you hit the COGS add-back rule or realize your June 15 estimated payment was too low. At Catalyst CPA Corporation, Adham Abadier, CPA (License #158599) works directly with LLC owners across Moreno Valley, Riverside, Corona, and the broader Inland Empire to calculate the correct fee tier, record it properly in QuickBooks Online, and file Form 568 and Form 3536 accurately. Whether you’re a single-member LLC just crossing the $250K threshold or a multi-member LLC with millions in California gross receipts, the goal is the same: pay exactly what you owe and not a dollar more.
Ready to confirm your 2026 LLC fee before the FTB sends you a correction? Explore our California business tax services or call (951) 223-1826 to speak with Adham directly. A 30-minute conversation now is far less expensive than a penalty notice later. Owners in Riverside and Corona can also learn more at our Riverside tax services page.
Last reviewed: June 21, 2026 by Adham Abadier, CPA (CA #158599).
Disclaimer
This article is provided for general informational and educational purposes only and does not constitute legal, tax, or accounting advice. The information reflects law and FTB guidance as of June 2026 and is subject to change. Every LLC’s situation is unique — consult a licensed CPA or tax attorney before making decisions based on this content. Adham Abadier, CPA (CA License #158599) provides services through Catalyst CPA Corporation. Use of this website does not create a CPA-client relationship.
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