I was looking into S-Corp structures. In California, S-Corps are taxed at a 1.5% rate on their net income. What I couldn't figure out is if this 1.5% rate applies to the income of the S-Corp after paying the employee.

For example, if the S-Corp and its owner and sole employee make 225k per year and the S-Corp pays its employee 125k per year and has no other expenses. Is the California tax on the full 225k or the 100k remaining?

A reference along with the answer would be useful, thanks.

1 Answer 1


Net income is all income minus all the allowable deductions. Salary is an allowable deduction.

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