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California S Corp Taxes: $800 Min & PTE (2026)
Short answer: Every California S corp owes an $800 minimum franchise tax plus a 1.5% tax on net income, filed on Form 100S. On top of that, most profitable S corps benefit from electing to pay California's 9.3% pass-through entity tax, which lets the owner deduct that state tax in full on their federal return instead of running into the SALT cap.
The $800 minimum franchise tax
California charges every corporation doing business in the state a minimum franchise tax of $800, and this applies the same way whether the entity is organized as an LLC, an S corp, or a C corp. It isn't tied to profitability — a corporation that loses money, or hasn't started generating revenue yet, still owes it. The obligation is triggered by doing business in California, being registered with the Secretary of State, or being organized here, whichever applies first.
This is also the tax that trips people up when an S election gets filed late or turns out to be invalid: the $800 minimum still applies to the corporation, whether it ends up taxed as an S corp or defaults to a C corp. There's no scenario where forming the entity and then having a filing problem makes the $800 go away.
A corporation that is newly incorporated or newly qualified in California is exempt from the $800 minimum franchise tax for its first taxable year, and that exemption applies to S corporations. The 1.5% tax on net income still applies in year one, so a profitable first year is not tax-free; it just skips the $800 floor.
The 1.5% entity-level tax (and 3.5% for financial S corps)
Beyond the flat $800, California also taxes S corps at the entity level on net income — 1.5% for most S corps, rising to 3.5% for S corps classified as financial corporations. This is one of the real structural tradeoffs of the S corp election in California: an LLC taxed as a partnership doesn't pay this specific entity-level income tax (though it has its own separate gross receipts fee), while an S corp does.
That 1.5% can look like a straightforward cost of the S corp structure. In isolation, it is. But it's also the same mechanism that opens the door to the PTE election below — and for a lot of profitable owners, the PTE savings substantially outweigh the 1.5% cost.
Form 100S: filing and payment
California S corps file Form 100S to report the $800 minimum tax and the 1.5% (or 3.5%) entity-level tax. For a calendar-year S corp, Form 100S is due March 15, with an automatic six-month extension to file (not to pay) that moves the filing date to September 15. Estimated tax is paid in four installments during the year, and the $800 minimum is paid with the first installment, so plan cash for it in April rather than at filing time.
The PTE elective tax: working around the federal SALT cap
Here's where California S corp taxation gets genuinely valuable for a profitable owner. The 2017 federal tax law capped the amount of state and local tax (SALT) an individual can deduct on their federal return at $10,000 ($5,000 if married filing separately) for tax years from 2018 through 2025. For a successful California business owner, state income tax alone routinely exceeds that cap many times over — meaning a large chunk of state tax paid simply stopped being federally deductible.
For 2025, Congress raised that overall SALT cap to $40,000 ($20,000 if married filing separately), and for 2026 it is $40,400 ($20,200 married filing separately). The higher cap phases down by 30% of modified adjusted gross income above $505,000 ($252,500 married filing separately), but never below $10,000, which means a high earner is back at the old $10,000 cap once income passes roughly $606,000. Even at the higher cap, a profitable California S corp owner's state tax bill typically still exceeds it, which is exactly the gap the PTE election is built to close.
In IRS Notice 2020-75, the IRS blessed a workaround that dozens of states, including California, built into their tax codes: if the *entity* — not the individual — pays the state income tax, that payment isn't subject to the individual's SALT cap at all. It just becomes a federal business expense deduction for the entity, which lowers the pass-through income reported to the owner.
Who can elect, and how the 9.3% works
Entities taxed as a partnership or an S corp can annually elect to pay California's Pass-Through Entity (PTE) elective tax at a flat 9.3% rate on Qualified Net Income (QNI) — generally the shareholders' pro-rata share of the S corp's K-1 income and loss, net of certain deductions, excluding any shareholder with negative income. The election is binding and irrevocable once made for the year, and it has to be made on an original, timely filed return — you cannot go back and make it on an amended return after the fact.
When the entity pays the 9.3% tax, two things happen. First, that payment is a federal deduction at the entity level, lowering taxable pass-through income. Second, each electing shareholder gets a nonrefundable California tax credit equal to 9.3% of their share of the QNI that was taxed — so the same income isn't taxed twice at the state level. The credit can bring your regular tax below the tentative minimum tax, though it can't be used against AMT itself, and any credit you can't use carries forward for up to five years.
The three forms: 3893, 3804, 3804-CR
The mechanics run through three FTB forms. Form 3893 is the payment voucher used to remit the elective tax — though if the entity is required to pay electronically, this paper form can't be used instead of EFW or FTB Web Pay. Form 3804 is filed with the S corp's return and includes a Schedule of Qualified Taxpayers that traces exactly how much QNI and credit belongs to each shareholder. Form 3804-CR is what the individual shareholder files with their own California return to actually claim that credit.
The June 15 prepayment deadline — and the 12.5% penalty
This is the part that catches people off guard. To make a valid election for taxable years 2022 through 2030, the entity has to make a prepayment by June 15 of that tax year — the greater of 50% of last year's PTE tax, or a flat $1,000 minimum. The remaining balance is due with the original return, without extensions.
For years before 2026, missing that June 15 payment meant losing the election for the year entirely. Starting with tax years beginning in 2026 (through 2030), a missed June 15 payment no longer kills the election outright — but it comes with a real cost: the shareholders' PTE credit gets permanently reduced by 12.5% of their share of whatever was due and unpaid on June 15. In other words, the fix for missing the deadline isn't free — it's a smaller, permanent haircut to the credit instead of losing the whole election.
With the election vs. without: a simple comparison
Take an S corp with $300,000 of Qualified Net Income for the year, electing into the PTE tax:
CA state tax on that income — Without the PTE election: Paid personally by the shareholder; With the PTE election: Paid by the entity (9.3% = $27,900)
Federal deductibility of that state tax — Without the PTE election: Limited by the individual SALT cap; With the PTE election: Fully deductible as a business expense — no cap
California credit to the shareholder — Without the PTE election: None; With the PTE election: Nonrefundable credit of $27,900, carries forward up to 5 years if unused
June 15 prepayment required — Without the PTE election: No; With the PTE election: Yes — greater of $1,000 or 50% of last year's PTE tax
The core tradeoff: without the election, state tax the owner pays personally is capped at the federal SALT limit for deduction purposes. With the election, the same dollars get paid at the entity level and deducted in full federally — the owner just has to hit the June 15 prepayment and file the right forms.
As an Enrolled Agent practicing under Circular 230, this is the kind of election we map out before the tax year ends, not after — the prepayment deadline and the irrevocable, original-return-only election mean there's very little room to fix a missed step after the fact.
Frequently Asked Questions
Do I have to pay the $800 minimum tax even if my S corp lost money?
Yes. The $800 minimum franchise tax applies to corporations doing business in, registered in, or organized in California regardless of profit or loss, and it applies the same way to LLCs, S corps, and C corps.
Is the PTE election worth it if my state tax is under the federal SALT cap?
Probably not as strongly. The PTE election's main value is letting you deduct state tax that would otherwise be stuck behind the SALT cap. If your state tax liability is already comfortably under the cap, the benefit shrinks — this is worth running through your actual numbers rather than assuming either way.
What happens if I miss the June 15 PTE prepayment?
It depends on the tax year. For years before 2026, missing it meant you couldn't make the election at all for that year. For tax years from 2026 through 2030, you can still make the election, but your PTE credit is permanently reduced by 12.5% of the unpaid prepayment amount, a change made by SB 132 in 2025.
Can I make the PTE election on an amended return if I forget?
No. The election has to be made on an original, timely filed return. It cannot be made retroactively on an amended return, which is why this needs to be decided before or during the filing — not after you realize you should have done it.
Does the PTE credit help with the federal QBI deduction I'm missing in California?
Indirectly, yes. California doesn't conform to the federal qualified business income deduction, so that benefit you get federally doesn't reduce your California taxable income. The PTE credit is the main mechanism available to offset that gap at the state level.
Last reviewed: October 2026 by Sabih Shafi, EA
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