S-Corp Election in California (Form 2553) (2026)

Fact-checked by the LegalGlass editorial team against primary sources · Published Aug 6, 2026 · Last updated Aug 6, 2026

You elect S-corporation status in California by filing IRS Form 2553 no later than 2 months and 15 days (about 75 days) after the start of the tax year the election takes effect. California recognizes the federal election automatically, but the S corporation still files FTB Form 100S and pays a 1.5% state franchise tax with an $800 annual minimum.

What an S-Corp Election Is - and Is Not

An "S corporation" is not a type of business entity you form with the California Secretary of State. It is a federal tax election made with the IRS under Subchapter S of the Internal Revenue Code. You first create a legal entity - a corporation or a California LLC - and then ask the IRS to tax that entity as an S corporation by filing Form 2553. The underlying entity, its registered agent, and its articles of organization do not change; only the federal, and in turn the state, income tax treatment changes.

The appeal of the election is pass-through taxation combined with potential self-employment tax savings. Instead of the entity paying a separate corporate income tax, profits and losses flow through to the owners' individual returns. Owner-employees pay Social Security and Medicare tax only on their salary rather than on all business profit, which is the main reason profitable single-owner businesses compare an S election with the default LLC treatment. For a plain-English comparison, see S-corp vs LLC and the national business tax overview. California is notable because, unlike some states, it layers a state-level tax on top of the pass-through, discussed below.

Eligibility Requirements for S-Corp Status

Not every business can elect S status. Internal Revenue Code section 1361 limits the election to entities that meet all of the following conditions on the effective date:

• It is a domestic corporation or an eligible domestic business entity such as an LLC.
• It has no more than 100 shareholders (family members can be counted as one).
• Shareholders are only eligible owners - individuals, certain estates, and certain trusts. Partnerships, corporations, and nonresident aliens cannot be shareholders, which is one reason nonresident owners often first obtain an ITIN and confirm residency before electing.
• It has one class of stock (differences in voting rights are allowed, but not differences in distribution or liquidation rights).
• It is not an ineligible corporation (such as certain financial institutions and insurance companies).

If any requirement fails, the election is invalid, so confirm ownership and capital structure before filing. Many California small businesses that begin as a single-member LLC or a DBA sole proprietorship meet these tests easily. Register any brand names through the trademark process separately; the S election has no effect on intellectual property.

How to Elect S-Corp Status in California, Step by Step

The election is a federal filing, but you also keep your California entity in good standing. Follow these steps:

1. Confirm eligibility. Review the checklist above against your ownership and stock structure.
2. Get an EIN. Apply for a free federal Employer Identification Number from the IRS if you do not already have one; Form 2553 requires it.
3. Hold a vote and collect consents. Obtain the signed consent of every shareholder. Complete Form 2553 with the entity information, effective date, and selected tax year.
4. File on time. Submit Form 2553 to the IRS by mail or fax within 2 months and 15 days of the start of the tax year, or during the preceding year.
5. Keep California filings current. California recognizes the federal election automatically; going forward, file FTB Form 100S and maintain your registered agent, Statement of Information, and any local licenses.

The IRS will send a CP261 notice confirming acceptance. Keep it with your permanent records along with the stamped copy of Form 2553 and your corporate records.

How California Treats S Corporations (Form 100S)

California does not require a separate state-level S election. Once the IRS accepts Form 2553, the entity is treated as an S corporation for California purposes as well and files FTB Form 100S, the S Corporation Franchise or Income Tax Return, with the Franchise Tax Board. Income generally passes through to shareholders, who report their distributive shares on their individual California returns using Schedule K-1 (100S).

California is unusual because it taxes the S corporation itself. Under the Revenue and Taxation Code, a California S corporation pays a 1.5% franchise tax on its net income, and every corporation is subject to the $800 annual minimum franchise tax even if it has little or no income. So an S corporation in California with net income owes the greater of 1.5% of that income or $800. Newly formed corporations should confirm any first-year rules with the FTB. An LLC taxed as an S corporation follows the corporate franchise-tax rules rather than the LLC gross-receipts fee, so compare the numbers in California LLC tax filing and California LLC cost before electing. The dissolution process also differs for a corporation.

Reasonable Salary, Payroll, and Deadlines

The central compliance rule for an S corporation is reasonable compensation. A shareholder who works in the business must be treated as an employee and paid a reasonable salary through payroll - subject to Social Security, Medicare, and income tax withholding - before taking additional profit as a distribution. Paying an unreasonably low salary to reduce payroll tax is a frequent audit trigger. There is no fixed statutory figure; "reasonable" means what a comparable business would pay for the same work, considering the owner's duties, time, and experience.

Running payroll means registering for federal employment taxes and California withholding with the Employment Development Department, filing quarterly Form 941, and issuing a Form W-2. The federal S corporation return, Form 1120-S, and California Form 100S are generally due by the 15th day of the third month after the tax year ends - March 15 for calendar-year filers - with Schedule K-1 issued to each shareholder. Missing the federal or California deadline can trigger per-shareholder penalties, so calendar these dates. If your circumstances change, you can revoke the election following the IRS procedure. Owners weighing the payroll burden often review the registered agent and recordkeeping duties in the glossary first.

Is an S-Corp Election Worth It in California?

The election is not automatically beneficial, and in California the analysis is more demanding because of the 1.5% franchise tax. An S election makes the most sense once a business earns more net profit than the owner would reasonably take as salary, because only the salary portion is subject to Social Security and Medicare tax while the remaining distribution is not. But in California you must weigh those federal payroll-tax savings against the state's 1.5% tax and the $800 minimum, which reduce the net benefit compared with a no-income-tax state. Below the break-even point, the added cost of running payroll, filing Form 100S, and maintaining stricter records can outweigh the savings entirely.

There are also non-tax trade-offs. An S corporation must respect corporate formalities: separate payroll, reasonable compensation, and clean books that distinguish wages from distributions. Owners who mix personal and business funds, or who skip payroll, lose much of the benefit the structure provides and invite IRS scrutiny. Because the analysis is fact-specific, most California owners model the numbers with a CPA before electing, especially given the state's 1.5% layer. If an election turns out to be premature, the default treatment described in California LLC tax filing remains available, and you can revoke and re-elect later, subject to the IRS five-year waiting rule after a revocation.

Keep in mind that the S election changes only income tax treatment. It does not affect your liability shield, your obligation to maintain an operating agreement, your business licenses, or your duty to keep the entity in good standing through the state registry. Owners comparing states sometimes look at Florida, New York, or Louisiana, which each treat the election differently at the state level.

Frequently Asked Questions

What is the deadline to file Form 2553 in California?

File within 2 months and 15 days after the beginning of the tax year the election takes effect, or any time during the preceding tax year. Late elections may still qualify for relief under Rev. Proc. 2013-30 if you show reasonable cause.

Does California recognize a federal S-corp election?

Yes. California recognizes the federal S election automatically once the IRS accepts Form 2553; no separate state form is needed. The S corporation files FTB Form 100S and pays the 1.5% franchise tax with an $800 minimum.

How much is the California S-corp franchise tax?

California taxes an S corporation at 1.5% of net income, subject to the $800 annual minimum franchise tax. It is paid to the Franchise Tax Board with Form 100S and applies even in a low-profit year.

Can a California LLC elect S-corp status?

Yes. An eligible California LLC can be taxed as an S corporation by filing Form 2553. The LLC keeps its legal form and registered agent but files Form 100S and follows the corporate franchise tax rules.

What counts as a reasonable salary?

Reasonable compensation is what a comparable business would pay for similar services. The IRS requires shareholder-employees to take a reasonable salary through payroll before distributions; there is no single statutory number.

How do I revoke the election?

File a statement of revocation with the IRS signed by shareholders holding more than half the shares. Timing determines whether it applies to the current or the next tax year.

Related

• Business tax (cluster hub)
• S-corp vs LLC comparison
• S-corp election in New York (sibling)
• S-corp election in Florida (sibling)
• How to get an EIN
• How to form an LLC in California

Sources

1. IRS - About Form 2553, Election by a Small Business Corporation.
2. IRS - Instructions for Form 2553 (eligibility and deadline).
3. IRS - S Corporations (overview and requirements).
4. IRS - S Corporation Employees, Shareholders and Corporate Officers (reasonable compensation).
5. IRS - About Form 1120-S, U.S. Income Tax Return for an S Corporation.
6. IRS - About Schedule K-1 (Form 1120-S).
7. IRS - Rev. Proc. 2013-30 (late S election relief).
8. IRS - Get an Employer Identification Number (free EIN).
9. Cornell LII - 26 U.S. Code § 1361 (S corporation defined).
10. Cornell LII - 26 U.S. Code § 1362 (election; revocation; termination).
11. Cornell LII - 26 U.S. Code § 1363 (effect of election on the corporation).
12. Cornell LII - 26 U.S. Code § 1366 (pass-through to shareholders).
13. California Franchise Tax Board - S corporations (1.5% tax; Form 100S).
14. California Franchise Tax Board - Corporations filing information ($800 minimum franchise tax).
15. California Revenue & Taxation Code - § 23802 (S corporation tax; 1.5% rate).
16. California Revenue & Taxation Code - § 23153 ($800 minimum franchise tax).

LegalGlass provides general information for educational purposes and is not a law firm or a substitute for advice from a licensed attorney or tax professional. Laws, fees, and thresholds change; verify current requirements with the IRS and the California Franchise Tax Board before acting.