Is the California LLC First Year Free? Not Anymore, and Here Is What You Owe
The short answer
No. A California LLC formed today owes the $800 annual franchise tax in its first year.
The exemption people remember was real, but it was temporary. Assembly Bill 85 waived the first-year $800 tax for LLCs, limited partnerships, and limited liability partnerships that registered with the state on or after January 1, 2021 and before January 1, 2024. That window closed. It has not been extended, so every entity formed on or after January 1, 2024 pays the $800 in year one like every other year.
If you formed inside the 2021 to 2023 window, the waiver applied to your first year only, and you have owed the $800 every year since.
Why so much of the internet still says it is free
Because for three years it was true, and it was written about constantly. Formation services, law firm blogs, and finance sites all published "California waives your first year" content between 2021 and 2023, and most of it was never revisited when the provision lapsed. Nothing announces an expiration the way a new benefit announces itself.
So the pattern to watch for is a page that describes the waiver in the present tense without naming the 2024 cutoff. If an article says the first year is free and does not mention that AB 85 expired, it is describing a rule that no longer exists rather than lying to you on purpose. Check the date on anything that tells you otherwise, and check whether it names the January 1, 2024 line at all.
What a new California LLC actually owes, and when
There are three separate bills, and they arrive on three different schedules. This is where budgets go wrong.
| What | Amount | When |
|---|---|---|
| Articles of Organization (Form LLC-1) | $70 | At formation, to the Secretary of State |
| Statement of Information (Form LLC-12) | $20 | Within 90 days of formation, then every two years |
| Annual franchise tax | $800 | By the 15th day of the 4th month after formation, then annually |
| LLC fee on gross receipts | $900 to $11,790 | Only if California gross receipts exceed $250,000, see below |
The due date on that third line is the one that surprises people, because it is not April 15 and it is not the anniversary of your formation. It is the 15th day of the fourth month after your LLC is formed. An LLC formed on June 1, 2026 owes its first $800 by September 15, 2026, only about three and a half months into its life, quite possibly before it has earned anything at all.
The $800 is also not tied to income. It is owed by an LLC with no revenue, an LLC that never opened a bank account, and an LLC you have stopped using but never formally dissolved. That last case is how people end up with several years of accrued tax on an entity they forgot about.
The second bill: California's gross receipts fee
Above $250,000 of California-sourced gross receipts, a separate LLC fee applies on top of the $800. Two things make it harsher than people expect. It is calculated on gross receipts, not profit, so a high-revenue, thin-margin business can owe a substantial fee in a year it barely broke even. And it is set in brackets rather than as a rate.
The bracket structure creates real cliffs. An LLC with $999,999 in California gross receipts owes $2,500. One more dollar of receipts moves it into the next bracket at $6,000. That is $3,500 of additional tax triggered by a single dollar of revenue, which is worth knowing if your year is going to land near a threshold.
There is also a timing trap: the fee is estimated and paid in advance using Form 3536, generally due by the 15th day of the 6th month of the tax year, and underpaying the estimate can trigger a penalty on the shortfall. So a business that grows quickly during the year needs to watch the estimate, not just the final return.
Does this mean I should form in Wyoming or Nevada instead?
This is where the $800 sends people, and it is usually the wrong turn. If you live and operate in California, forming in another state generally does not avoid the $800.
An out-of-state LLC doing business in California is normally required to register in California as a foreign LLC, and once registered it is subject to the same $800 annual tax. The result is the cost you were avoiding, plus a second state's filing and annual fees, plus registered agents in both states, plus two sets of deadlines to miss. You have added expense and complexity to arrive at the same tax bill.
Where another state genuinely can make sense is narrower than the marketing suggests: businesses with no California nexus, certain holding structures, or specific investor requirements, and those are conversations for a tax professional rather than a formation ad. Our 50-state cost table shows what each state actually charges, and the LLC cost calculator runs the five-year math, including the second state most comparisons quietly leave out.
The practical checklist
- Budget $890 for year one at minimum: $70 formation, $20 statement of information, and the $800 franchise tax.
- Calendar the 15th day of the 4th month after your formation date, and treat it as a real deadline rather than a tax-season item.
- Watch the $250,000 line if you expect meaningful California revenue, and remember it is measured on gross receipts.
- Formally dissolve anything you stop using. The $800 keeps accruing on an inactive LLC until the state is told it is over.
- Do not form out of state to dodge the $800 if you operate in California, because foreign registration usually brings it right back.
The full state-by-state picture is on our California LLC guide, and if you are weighing whether to pay a service to handle the paperwork, our formation service comparison covers what the $0 tiers actually include.
Related Business Formation guides
Sources
General educational information only; not legal or tax advice. State fees and requirements change; verify with your state's filing office. Consult an attorney or tax professional about your situation. Last updated August 2026.