# Single-Member LLC or S Corp Election in California

> Should a single-member LLC elect S corp status in California? Savings at $60,000, $120,000, and $250,000 of profit after SDI, UI, the 1.5% tax, and LLC fee.

Source: https://ridleylawoffices.com/single-member-llc-vs-s-corp-california/

**Short answer:** A California single-member LLC can stay taxed like a sole proprietorship or elect S corporation status and stay an LLC. The election replaces self-employment tax on all profit with payroll tax on a reasonable salary. In California it also swaps the LLC tax and fee for a 1.5% tax with an $800 minimum and adds state payroll. The savings grow with profit and are thin below about $60,000.

- A timely S election also counts as the LLC’s election to be taxed as a corporation (26 C.F.R. § 301.7701-3(c)(1)(v)(C)).
- California follows the federal S election (Rev. & Tax. Code § 23801(a)).
- The S corporation pays California 1.5% of net income and is subject to the minimum franchise tax (Rev. & Tax. Code § 23802(b)(1) and (c)), which is $800 (Rev. & Tax. Code § 23153(d)(1)).
- Once taxed as a corporation, the LLC’s owner is an employee for EDD purposes (Unemp. Ins. Code § 621(f)).

Nearly every one-owner business I form gets the same question within a year or two: “Should I elect S corp?” The answer depends on your profit, your salary, and California’s extra charges. Below I run three California businesses at different profit levels, show where the savings come from, and list what the tables leave out. The overview for all entity types is on [LLC vs. S corp in California](https://ridleylawoffices.com/llc-vs-s-corp-california/).

## Can a single-member LLC be an S corp?

Yes. The LLC stays an LLC under California law and elects to be taxed as an S corporation by filing IRS Form 2553. Nothing changes with the Secretary of State.

By default, the IRS disregards a one-owner LLC, and its income goes on the owner’s Schedule C. When an eligible LLC timely elects S status, federal regulations treat it as having elected to be classified as a corporation too, so a separate Form 8832 isn’t needed ([26 C.F.R. § 301.7701-3(c)(1)(v)(C)](https://www.law.cornell.edu/cfr/text/26/301.7701-3)). California then treats it the same way. An entity’s California classification follows its federal classification ([Rev. & Tax. Code § 23038(b)(2)(B)(ii)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC&sectionNum=23038)). And a valid federal S election makes it an S corporation for California ([Rev. & Tax. Code § 23801(a)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC&sectionNum=23801)).

The liability protection doesn’t change. The LLC’s debts are still its own ([Corp. Code § 17703.04(a)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CORP&sectionNum=17703.04)), and your operating agreement still governs. It may need amendments to fit the election; see [the California LLC operating agreement](https://ridleylawoffices.com/california-llc-operating-agreement/).

## What changes when a single-member LLC elects S status in California?

The tax returns, the California tax, and how you’re paid all change.

| | Single-member LLC, default | Single-member LLC taxed as S corp |
| --- | --- | --- |
| Federal return | Schedule C on your Form 1040 | Form 1120-S, plus a K-1 to you |
| California return | Form 568 plus your Form 540 | Form 100S plus your Form 540 |
| California entity charge | $800 LLC tax, plus the LLC fee from $250,000 of California income | 1.5% of net income, $800 minimum; no LLC fee |
| How you’re paid | Draws; all profit subject to self-employment tax | W-2 salary through payroll, then distributions |
| California payroll | None for you | UI, ETT, and SDI on your wages |

Why the LLC fee disappears: the LLC tax and fee apply to a “limited liability company,” which the statute defines as one “not taxable as a corporation for California tax purposes” ([Rev. & Tax. Code § 17941(d)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC&sectionNum=17941)). For the franchise tax, “corporation” includes an LLC classified as an association (Rev. & Tax. Code § 23038(c)). As an S corporation it’s taxed at 1.5% and is subject to the minimum franchise tax ([Rev. & Tax. Code § 23802(b)(1) and (c)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC&sectionNum=23802)). Background on the charges you leave behind is on [the California LLC $800 tax](https://ridleylawoffices.com/california-llc-800-tax/) and [the California LLC gross receipts fee](https://ridleylawoffices.com/california-llc-gross-receipts-fee/).

Why you go on payroll: California’s unemployment insurance law defines “employee” to include “any member of a limited liability company that is treated as a corporation for federal income tax purposes” ([Unemp. Ins. Code § 621(f)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=UIC&sectionNum=621)). Federally, the IRS requires reasonable compensation before non-wage distributions ([IRS, S corporation compensation and medical insurance issues](https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues)).

Workers’ compensation also comes up. Working members of an LLC who receive wages regardless of profits are employees for workers’ compensation, and a managing member can elect out under the listed exception ([Lab. Code § 3351(f)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB&sectionNum=3351)). Ask your insurance broker which applies to you.

## How much does the S election save a single-member LLC in California?

It saves the self-employment tax on profit above your salary, minus California’s added costs. At $60,000 of profit, that’s under $1,600 before payroll and tax prep fees. At $250,000, it’s over $10,000.

Compare these one-owner Ventura County businesses, all in 2026, all new employers for EDD purposes.

- A Port Hueneme bookkeeper with $90,000 of gross receipts, $60,000 of profit, and a $40,000 salary.
- A Simi Valley IT consultant with $170,000 of gross receipts, $120,000 of profit, and a $70,000 salary.
- A Thousand Oaks commercial cleaning contractor with $320,000 of gross receipts, $250,000 of profit, and a $110,000 salary.

| Item | $60,000 profit | $120,000 profit | $250,000 profit |
| --- | --- | --- | --- |
| Self-employment tax, default LLC | $8,478 | $16,955 | $29,573 |
| Payroll tax on salary, both halves | $6,120 | $10,710 | $16,830 |
| Federal employment tax saved | $2,358 | $6,245 | $12,743 |
| California: LLC tax and fee (default) | $800 | $800 | $1,700 |
| California: S corporation tax at 1.5% | $800 (minimum) | $800 (minimum) | $1,970 |
| California UI and ETT | $245 | $245 | $245 |
| California SDI withheld (1.3%) | $520 | $910 | $1,430 |
| **Net difference before payroll and prep fees** | **$1,593** | **$5,090** | **$10,798** |

The table rests on these rates and rules.

- **Self-employment tax** is 12.4% for Social Security plus 2.9% for Medicare ([26 U.S.C. § 1401(a) and (b)](https://www.law.cornell.edu/uscode/text/26/1401)), applied to 92.35% of profit under [26 U.S.C. § 1402(a)(12)](https://www.law.cornell.edu/uscode/text/26/1402). The Social Security part stops at the 2026 wage base of $184,500 ([IRS Publication 15 (2026)](https://www.irs.gov/publications/p15)). The $250,000 column doesn’t scale evenly for that reason.
- **Payroll tax** is 6.2% Social Security and 1.45% Medicare, each paid by employer and employee (IRS Publication 15 (2026)).
- **California payroll** uses the 3.4% new-employer UI rate and the 0.1% ETT rate, both on the first $7,000 of wages, and the 2026 SDI rate of 1.3% on all wages ([EDD, Rates and Withholding](https://edd.ca.gov/en/payroll_taxes/rates_and_withholding/)). SDI no longer has a wage ceiling for wages paid on or after January 1, 2024 ([Unemp. Ins. Code § 985(b)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=UIC&sectionNum=985)).
- **The S corporation tax** is 1.5% of profit after salary, the employer half of payroll tax, and UI and ETT. Only the contractor’s income is high enough to exceed the $800 minimum.
- **The LLC fee** is $900 for the contractor, whose total California income falls between $250,000 and $500,000 ([Rev. & Tax. Code § 17942(a)(1)](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=RTC&sectionNum=17942)). The other two are under $250,000 and owe no fee.

The contractor’s default LLC may also owe the 0.9% Additional Medicare Tax on self-employment income above the threshold (26 U.S.C. § 1401(b)(2)), which would widen the gap a little.

### What the table leaves out

- **Running costs.** A payroll service, an S corporation return, and more bookkeeping. Get quotes from your CPA before you decide. For the bookkeeper, these can eat most of the $1,593.
- **Federal income tax effects.** The employer half of payroll tax is deductible, salary doesn’t count as qualified business income for the federal 20% deduction under [26 U.S.C. § 199A](https://www.law.cornell.edu/uscode/text/26/199A), and wages can raise the deduction’s wage limit for higher earners. California has no such deduction ([FTB, 2025 Schedule K-1 (565) instructions](https://www.ftb.ca.gov/forms/2025/2025-565-k-1-instructions.html)).
- **What SDI buys.** SDI withholding gives you state disability and paid family leave coverage you don’t have as a self-employed owner. It’s a cost, but not a wasted one.
- **Future Social Security.** A lower salary means lower earnings credited toward your own Social Security benefit.
- **Retirement plan limits.** Contributions to your own plan are figured on W-2 wages once you elect, so a low salary can shrink them. See [solo 401(k) vs. SEP IRA for California owners](https://ridleylawoffices.com/solo-401k-vs-sep-ira-california/).

The salaries in the table are assumptions for illustration. Setting yours is its own analysis, and the IRS looks at your duties, time, and what comparable businesses pay. I cover that on [S corp reasonable salary for California owners](https://ridleylawoffices.com/s-corp-reasonable-salary-california/).

## When should a single-member LLC skip the S election?

Skip it when profit is modest or erratic, when the LLC holds rental property, or when you expect to bring in a partner on unequal terms. In each case the default LLC is simpler and gives up little.

- **Profit near the salary line.** If a defensible salary would take most of the profit, there’s little left to save on.
- **Rental real estate.** Rental income from real estate is generally excluded from self-employment income anyway (26 U.S.C. § 1402(a)(1)), and appreciated property is harder to move out of a corporation later. See [the rental LLC guide](https://ridleylawoffices.com/guides/rental-llc/).
- **A future partner.** An S corporation can have only one class of stock ([26 U.S.C. § 1361(b)(1)(D)](https://www.law.cornell.edu/uscode/text/26/1361)). If you’ll give an investor a preferred return, the election gets in the way.
- **A spouse who isn’t a U.S. resident.** In California, a nonresident alien spouse’s community property interest in the business can make the spouse a shareholder and disqualify the S election ([26 C.F.R. § 1.1361-1(g)(1)(i)](https://www.law.cornell.edu/cfr/text/26/1.1361-1)).
- **Payroll you won’t keep up.** An S corporation that skips payroll and takes only distributions invites the IRS to recharacterize them as wages (IRS, S corporation compensation and medical insurance issues).

Also think about the exit. Undoing corporate classification is treated as a liquidation for tax purposes (26 C.F.R. § 301.7701-3(g)(1)(iii)). And when you eventually close the business, the steps differ; see [how to close an S corp in California](https://ridleylawoffices.com/how-to-close-s-corp-california/).

## How does a single-member LLC elect S corp status?

File Form 2553 on time, get the right signatures, and have payroll running before the first distribution. California needs no separate election.

1. **Pick the effective date.** Form 2553 is due no more than 2 months and 15 days after the start of the tax year the election should take effect, or any time in the year before ([26 U.S.C. § 1362(b)](https://www.law.cornell.edu/uscode/text/26/1362)). For a calendar-year LLC electing for 2027, that’s by March 15, 2027.
2. **Get every required signature.** If you’re married and the LLC interest is community property, your spouse must consent too ([26 C.F.R. § 1.1362-6(b)(2)(i)](https://www.law.cornell.edu/cfr/text/26/1.1362-6)). A missing spouse consent is the most common flaw I find in elections a client filed alone.
3. **Keep proof of filing.** California filers send it to the Ogden service center by mail or fax. The IRS lists a certified mail receipt or an acceptance letter as acceptable proof ([IRS, Instructions for Form 2553](https://www.irs.gov/instructions/i2553)).
4. **Register with the EDD and start payroll.** Set a salary you can support with facts, and pay it on a regular schedule.
5. **Tell your CPA.** The LLC stops filing Form 568 and files Form 1120-S and California Form 100S for the first S year.

If the deadline has passed, relief is often available. The full process, including late elections and how California follows them, is on [filing Form 2553 and the California S election](https://ridleylawoffices.com/s-corp-election-form-2553-california/).

## Frequently asked questions

### Is a single-member LLC or an S corp better in California?

They aren’t opposites, since a single-member LLC can be taxed as an S corp. In my examples, electing saves about $1,600 at $60,000 of profit and about $10,800 at $250,000, before payroll and prep costs. Below roughly $60,000 of profit, the default LLC usually wins on simplicity.

### Does a single-member LLC taxed as an S corp still pay the $800?

Yes, as the S corporation minimum franchise tax rather than the LLC tax. It pays the 1.5% S corporation tax and is subject to the minimum franchise tax (Rev. & Tax. Code § 23802(b)(1) and (c)), which is $800 (Rev. & Tax. Code § 23153(d)(1)). It no longer owes the LLC fee.

### Does my LLC still file Form 568 after the S election?

No. Once the LLC is taxed as a corporation, it isn’t a “limited liability company” for the LLC tax, because that term means an LLC not taxable as a corporation for California purposes (Rev. & Tax. Code § 17941(d)). It files Form 100S with the FTB and Form 1120-S with the IRS.

### Can I take only distributions and no salary?

Not if you work in the business. The IRS requires reasonable compensation before non-wage distributions and can reclassify distributions as wages. California also treats you as an employee for EDD purposes (Unemp. Ins. Code § 621(f)).

### Does the S election change my liability protection?

No. The LLC is still an LLC under California law, and its debts remain its own (Corp. Code § 17703.04(a)). Only the tax treatment changes.

### What happens to the S election if I die?

Your estate or a qualifying trust can hold S stock, but some trusts need their own election within a deadline to keep the S status. Planning for that belongs in your estate plan; see [what happens to an LLC when the owner dies](https://ridleylawoffices.com/llc-owner-dies-california/).

More in this series

- [LLC vs. S corp in California](https://ridleylawoffices.com/llc-vs-s-corp-california/)
- [Filing Form 2553 and the California S election](https://ridleylawoffices.com/s-corp-election-form-2553-california/)
- [S corp reasonable salary for California owners](https://ridleylawoffices.com/s-corp-reasonable-salary-california/)
- [Sole proprietor to LLC in California](https://ridleylawoffices.com/sole-proprietorship-vs-llc-california/)
- [C corp vs. S corp for a California small business](https://ridleylawoffices.com/c-corp-vs-s-corp-california/)
- [Entity formation](https://ridleylawoffices.com/entity-formation/)
- [All business owner guides](https://ridleylawoffices.com/business-guides/)

My [entity formation](https://ridleylawoffices.com/entity-formation/) service is a flat fee, $2,500 for a single-owner LLC. Revising an existing operating agreement for an S election is billed at $500 per hour; see [fees](https://ridleylawoffices.com/fees/).

[Talk to Eric](https://ridley.click/eric-60)

Book a consultation at [ridley.click/eric-60](https://ridley.click/eric-60) or call 805-244-5291. I work with business owners in Ventura, Santa Barbara, and Los Angeles counties by Zoom or phone.

**Please read:** This page is general information about California law as of September 2026. It isn’t legal, tax, or financial advice, and reading it doesn’t make you my client. Tax treatment and the right structure depend on facts this page can’t see, so talk with your CPA as well. An attorney-client relationship starts only with a signed engagement agreement.