Yes. California law reduces the annual LLC tax from $800 to $400 for eligible LLCs whose first taxable year begins on or after January 1, 2027, and before January 1, 2030. The reduction applies only to that first taxable year. State filing fees and other costs remain separate. Existing LLCs do not get a new $400 year.
The rule covers LLCs required to file a California return under Revenue and Taxation Code §18633.5. LLCs taxed as corporations follow different rules. The controlling provision is §17941(g)(2) of the California Revenue and Taxation Code.
What changed, and when does it apply?
California's 2026 tax legislation introduced a temporary reduction in the first-year annual tax. SB 122, approved June 29, 2026, introduced the change. The current version of §17941 reflects a later amendment by SB 180, effective July 13, 2026.
Eligibility depends on when the LLC's first taxable year begins. The payment date does not determine eligibility.
| LLC tax situation | Annual LLC tax under the general rule |
|---|---|
| First taxable year begins in 2026 | $800, subject to applicable exceptions |
| Eligible first taxable year begins in 2027, 2028 or 2029 | $400 for that first taxable year |
| Second and later taxable years | Generally $800 per year, subject to applicable exceptions |
| First taxable year begins in 2030 or later | The temporary $400 provision does not apply under current law |
This is a $400 reduction in one annual tax payment for an eligible LLC. It is not a permanent 50% reduction in the cost of maintaining a California LLC.
Which LLCs are covered by the $400 rule?
The law ties the reduction to LLCs required to file a return under §18633.5. California's noncorporate LLC tax framework includes single-member LLCs treated as disregarded entities and LLCs treated as partnerships. The Franchise Tax Board explains that disregarded LLCs and LLCs classified as partnerships have California LLC return obligations. It also requires a single-member LLC to file Form 568 even when the entity is disregarded for income tax purposes.
An LLC taxed as a corporation is outside the definition used in §17941. Do not assume that an LLC with an S corporation or C corporation tax election qualifies for this particular $400 reduction.
Sources: FTB's LLC filing information, single-member LLC guidance, and §17941(d) and (g)(2).
Does an LLC formed in 2026 get the lower rate when it pays in 2027?
The statute requires the first taxable year to begin within the 2027-2029 window. Paying a 2026 obligation in 2027 does not qualify the LLC for the reduction.
For example, an eligible LLC whose first taxable year begins in November 2026 does not qualify for the $400 provision for that year. Its next taxable year is not its first, so the reduction does not automatically apply then either.
An eligible LLC whose first taxable year begins in January 2027 falls within the window. Subject to its actual tax status and any applicable exceptions, the reduced annual tax for that first year is $400.
These examples describe the tax-year condition. They do not establish the correct filing or business-start date for every company.
Which costs are unchanged by this reduction?
The $400 figure is an annual LLC tax, not a total formation price. Budget separately for:
- The Secretary of State formation filing fee.
- Required Statements of Information.
- A paid registered agent, if you use one.
- Licenses and any registrations required where the business operates.
- Other applicable taxes and the separate income-based California LLC fee.
The FTB describes an additional LLC fee when total California income reaches $250,000 or more. The first-year annual tax reduction does not replace that fee.
Use our California LLC guide for the formation and maintenance cost breakdown. Our LLC cost calculator helps separate filing costs from ongoing charges. Apply the $400 rule only to an eligible first taxable year within the statutory window, rather than replacing every California annual tax estimate with $400.
Source: FTB's annual tax and LLC fee guidance.
Should you wait until 2027 to form your LLC?
Choose the formation date around the business you plan to run. An earlier start may be appropriate if you need the LLC for a contract or liability protection. Your tax classification also affects the obligations you will owe.
Submitting paperwork does not necessarily establish when the LLC legally begins. The first taxable year determines eligibility for this reduction. A payment date does not establish that tax year. If you are already operating or have an existing entity, ask a California tax professional how the current rules apply to your situation.
The reduction is useful for planning a genuinely new eligible LLC. It is not a promise that postponing paperwork will remove obligations from business activity that has already started.
Frequently Asked Questions
Is the $400 rule already law or still a proposal?
It is already in California law. The reduced amount applies to eligible first taxable years beginning in 2027-2029. The current official source is §17941(g)(2), as amended effective July 13, 2026.
Is this the old first-year $800 tax waiver?
No. The earlier first-year waiver applied to qualifying LLCs organized or registered from January 1, 2021, through December 31, 2023. The new provision reduces the annual tax to $400 for an eligible first taxable year in 2027-2029; it does not make that tax zero.
Will an existing LLC pay $400 in 2027?
Not simply because 2027 is within the window. The reduced amount is for an eligible LLC's first taxable year. It is not a reduced annual rate for every LLC operating during those years.
Does having no revenue automatically remove the annual tax?
No. The FTB says the annual LLC tax generally applies to LLCs doing business or organized in California even without activity, until cancellation. Specific exceptions exist, but no revenue alone is not a blanket exemption.
Does the reduction apply to an LLC taxed as an S corporation?
This provision applies under California's noncorporate LLC tax rules. An LLC taxed as a corporation follows corporation tax rules instead; the legal label "LLC" does not by itself establish eligibility.
Is $400 the full cost of starting a California LLC?
No. It is the reduced annual tax for an eligible first taxable year. Formation filings, Statements of Information, any paid agent, licenses and other applicable taxes or fees remain separate.
Where can you read the official rules?
- California Revenue and Taxation Code §17941: current law, including the $400 first-year provision and the LLC tax definition.
- SB 122: the June 2026 legislation that introduced the reduction.
- FTB Publication 3556: LLC tax classification, filing requirements and exceptions.
- FTB LLC guidance: annual tax and the separate income-based LLC fee.
Rules checked September 30, 2026. This article explains the state rule for planning purposes. It is not individual tax advice.