How to Start an S Corp in Arkansas

Arkansas S Corp Requirements

• Business Entity: You must have an active Arkansas corporation or LLC registered with the Arkansas Secretary of State before electing S Corp tax status.[2]
• Federal S Corp Election: File IRS Form 2553, Election by a Small Business Corporation, no later than 2 months and 15 days after the beginning of the tax year the election is to take effect.[3]
• Arkansas Recognition: No separate state election is required. Ark. Code Ann. § 26-51-409(b) provides that a federal S election is deemed to have been made for Arkansas income tax purposes, and a federal S Corporation may not elect to be treated as a C Corporation in Arkansas.[1]
• Shareholder Limits: No more than 100 shareholders. All shareholders must be U.S. citizens or residents, estates, certain trusts, or tax-exempt organizations. No corporate or partnership shareholders.[3]
• Stock Class: Only one class of stock is permitted. Voting rights may differ, but all shares must have identical distribution and liquidation rights.[3]
• Registered Agent: You must designate and maintain a registered agent with a physical Arkansas street address under Ark. Code Ann. § 4-20-105. PO boxes are not accepted.[4]
• Annual Franchise Tax: All Arkansas corporations must file an Annual Corporation Franchise Tax Report and pay at least the $150 minimum tax each year, due on or before May 1.[5]

What Is an S Corporation?

An S Corporation is not a type of business entity. It is a federal tax classification available to qualifying corporations and LLCs that elect to have their business income pass through to shareholders for tax purposes.

The S Corp designation is governed by Subchapter S of the Internal Revenue Code. When you elect S Corp status, the business itself generally does not pay federal income tax. Instead, income, losses, deductions, and credits flow through to shareholders, who report them on their personal returns.[13]

In Arkansas, an S Corporation files Form AR1100S, Subchapter S Corporation Income Tax Return, but generally does not pay state income tax at the entity level. Shareholders pay Arkansas personal income tax on their pro rata share of the S Corp’s income, at rates up to 3.9% for 2024 and later years.[1] The S Corp must still pay the Arkansas annual franchise tax (minimum $150) and may elect to pay the Arkansas Pass-Through Entity Tax (PET) at the entity level instead. See the Taxes section below.[5] [7]

For business owners earning $60,000 or more in net business income, the S Corp election can provide meaningful self-employment tax savings. Only the salary you pay yourself as a W-2 employee is subject to Social Security and Medicare taxes; distributions beyond reasonable compensation are not.

Key Deadlines for Arkansas S Corps

Key Benefits of an S Corp vs. an LLC in Arkansas

• Self-Employment Tax Savings: LLC members generally pay 15.3% self-employment tax on all net business income. S Corp shareholders pay payroll taxes only on their W-2 salaries. Distributions beyond reasonable compensation are not subject to Social Security or Medicare taxes, which can save several thousand dollars per year at higher income levels.
• No Franchise Tax on LLC Capital Stock: Both LLCs and corporations owe Arkansas franchise tax, but LLCs pay a flat $150 annual franchise tax while corporations compute the tax on outstanding capital stock at 0.3%, with a $150 minimum. For a small S Corp with modest capital, the difference is negligible.[5]
• PET Election Available: Both S Corps and LLCs taxed as partnerships or S Corps may elect the Arkansas Pass-Through Entity Tax at 3.9%, providing a federal SALT cap workaround under Act 362 of 2021. C Corporations and single-member LLCs taxed as C Corps cannot make this election.[7]
• Credibility and Structure: The corporate form with officers, directors, bylaws, and shareholder meetings can enhance credibility with lenders, vendors, and investors compared with a member-managed LLC.
• Employee Benefits Deductions: S Corp shareholder-employees who own 2% or less can deduct health insurance premiums, retirement contributions, and other fringe benefits pre-tax, a treatment not generally available to LLC owners.

Key Benefits of an S Corp vs. a C Corp in Arkansas

• No Double Taxation: C Corporations pay Arkansas corporate income tax (graduated rates topping out at 4.3% for taxable income over $11,000) and shareholders pay personal income tax on dividends. S Corp income passes through to shareholders only once.[6]
• Lower Effective Tax Rate: Arkansas C Corps pay 4.3% on income over $11,000 plus shareholder dividend tax. S Corp shareholders pay Arkansas personal income tax at rates up to 3.9%, with no entity-level income tax (only the $150 minimum franchise tax).[1] [5] [6]
• Loss Pass-Through: S Corp losses pass through to shareholders’ personal returns and can offset other income, subject to basis, at-risk, and passive activity limitations. C Corp losses stay at the entity level and only offset future corporate income.
• No Accumulated Earnings Tax: C Corps that retain earnings beyond reasonable business needs may face a 20% federal accumulated earnings tax. S Corps have no such risk because income passes through to shareholders annually.
• PET Eligibility: Only pass-through entities (S Corps, partnerships, and LLCs taxed as such) can elect the Arkansas Pass-Through Entity Tax. C Corps cannot use the PET to work around the federal $10,000 SALT deduction cap.[7]

How to Start an S Corp in Arkansas: Step-by-Step

An S Corp is a tax classification, not a standalone entity. You must have an active Arkansas corporation or LLC on file with the Secretary of State before you can elect S Corp tax treatment with the IRS.

If you want to form an LLC first, check this guide.

If you want to incorporate as a C Corp first, check this guide.

Already have an existing LLC or corporation? Move to Step 1.

Step 1: File IRS Form 2553 (Federal S Corp Election)

Form 2553, Election by a Small Business Corporation, is the IRS form that officially elects S Corp tax treatment at the federal level. It must be filed no later than 2 months and 15 days after the beginning of the tax year the election is to take effect. For a calendar-year corporation electing S Corp status for 2026, the deadline is March 15, 2026.[3]

What Information Is Required To File Form 2553?

Form 2553 collects the following information:

• Business legal name, address, and EIN
• The tax year for which the election is to take effect
• Your entity’s date of formation or incorporation
• Name, address, and ownership percentage of each shareholder or member
• Shareholder/member consent signatures (Part I, Column K)
• Fiscal tax year details, if not operating on a calendar year

All shareholders must sign the consent portion of the form before submission. An unsigned form will be rejected by the IRS.

How To File Form 2553

You can submit Form 2553 by mail or fax. There is no filing fee.

If your principal business office is located in Arkansas, mail Form 2553 to: Department of the Treasury, Internal Revenue Service, Ogden, UT 84201.[8]

Fax number for Arkansas businesses: 855-214-7520.[8]

Faxing is typically faster than mailing. Keep your fax confirmation receipt. The IRS will issue a CP261 acceptance notice to confirm your S Corporation election. If your election is not accepted, you will receive a CP264 denial notice with the reason and corrective instructions.

Step 2: Confirm Arkansas Recognition (No Separate State Election Required)

Unlike states such as New York and New Jersey that require a separate state-level S election, Arkansas automatically recognizes a federal S election. Ark. Code Ann. § 26-51-409(b) provides that "an election made under Subchapter S for federal income tax purposes is deemed to have been made for Arkansas income tax purposes," and a federal S Corporation may not elect C Corp treatment in Arkansas.[1]

For tax years beginning before January 1, 2018, Arkansas required a separate state election on Form AR1103. That form has been retired. For tax years beginning on or after January 1, 2018, simply filing Form AR1100S in your first year as a federal S Corporation is sufficient to be taxed as an Arkansas S Corp.[1]

After your federal acceptance, attach a copy of your IRS Form 2553 acceptance letter (CP261) to your first Form AR1100S filing as documentation.

Step 3: Set Up Payroll and Pay Reasonable Compensation

As an S Corp shareholder-employee, you are required to pay yourself a reasonable salary through W-2 payroll. The IRS scrutinizes S Corps that pay unreasonably low salaries to avoid payroll taxes.

What Is a Reasonable Salary?

The IRS expects your salary to reflect what someone performing similar work, in the same industry and the same region, would typically earn. There is no fixed formula, but the IRS flags S Corps where compensation is well below market and most of the owner’s pay comes through distributions.

Setting your salary too low risks the IRS reclassifying distributions as wages, making them subject to payroll taxes plus penalties and interest. Setting it too high means paying more payroll tax than necessary and reducing the value of the S Corp election.

What Setting Up Payroll Involves

• Choosing a payroll system to process your W-2 salary and withhold taxes
• Making federal payroll tax deposits using Form 941 (typically quarterly)
• Registering with the Arkansas Division of Workforce Services for state unemployment insurance (UI) tax. Registration is required as soon as you have at least one employee for any portion of a day in each of 10 different calendar weeks.[11]
• Registering with the Arkansas Department of Finance and Administration Withholding Tax Section for state income tax withholding.[12]
• Filing annual W-2 forms and AR3MAR (Arkansas Employer’s Annual Reconciliation) for yourself and any other employees.[12]

Step 4: Get an Employer Identification Number (EIN)

If you do not already have an EIN, apply at no charge on the IRS website (irs.gov). An EIN is a nine-digit federal ID used for tax filings, hiring employees, and opening business accounts.

Due to the complexity of the application paperwork, many business owners prefer to use a professional filing service. Swyft Filings offers EIN filing as part of its formation packages.

Note: After obtaining your EIN, open a dedicated business bank account to keep your personal and business finances separate. This is essential to maintain your limited liability protection.

Compliance and Ongoing Requirements

Annual Franchise Tax Report

Every Arkansas corporation must file an Annual Corporation Franchise Tax Report with the Secretary of State and pay at least the $150 minimum tax on or before May 1 each year. The tax is computed at 0.3% of the corporation’s outstanding capital stock value apportioned to Arkansas, with a $150 floor for stock corporations and a $300 flat rate for corporations without authorized stock. No extensions are permitted under A.C.A. §§ 26-54-101 et seq. Late filings incur penalty and interest under A.C.A. §§ 26-54-107 and 114.[5]

Tax Returns

File IRS Form 1120-S and distribute Schedule K-1s to all shareholders by March 15 (calendar-year filers). File Arkansas Form AR1100S by April 15 (one month later than the federal deadline) and issue an Arkansas Schedule K-1 (AR K-1) to each shareholder. If you have elected the Pass-Through Entity Tax, file Form AR1100PET instead of AR1100S and pay the tax at the entity level.[1] [7]

Extensions

A federal automatic extension (Form 7004) extends the Arkansas filing deadline to match the federal extended due date. To request an additional 60 days beyond the federal extension, or an initial 180-day Arkansas extension, file Form AR1155 with payment of any estimated tax due. The extension is for filing only. Taxes are still due April 15 and accrue interest at 10% per annum and a 5% per month failure-to-pay penalty after that date.[1]

Estimated Tax

If your S Corp expects to owe more than $1,000 in Arkansas tax (including PET tax) after credits, pay quarterly estimated tax through the Arkansas Taxpayer Access Point (ATAP). Shareholders also pay their own quarterly Arkansas personal income tax on pass-through income.[1]

Late Filing Penalties

Late filing of Form AR1100S incurs a 5% per month penalty on the unpaid tax, up to a maximum of 35%, plus a 5% per month failure-to-pay penalty (also capped at 35%), plus 10% interest per annum. Underestimate penalty is 10% of the underestimated amount. Failure to file the form at all is a flat $50. Failure to make a required electronic-funds transfer payment is 5% of the tax due.[1]

What Happens If You Miss the S Corp Election Deadline in Arkansas?

If you fail to file Form 2553 with the IRS on time, your S Corp election will not take effect for the current tax year. Your business will be taxed as a C Corporation (or as a sole proprietorship/partnership if the underlying entity is an LLC) for that year, costing you the self-employment tax savings until the next tax year.

The IRS offers late election relief under Revenue Procedure 2013-30. To qualify, you must file within 3 years and 75 days of the intended effective date, demonstrate reasonable cause for the late filing, and confirm that the entity has consistently filed as if the S election were in effect.[3]

Because Arkansas auto-recognizes the federal S election, there is no separate state late-election process to worry about. Once the IRS grants late election relief, Arkansas will treat the entity as an S Corporation for the same tax year.[1]

How to Revoke the S Corp Election

Common Reasons Owners Revoke S Corp Status

• Exceeding 100 shareholders: If your business grows beyond the 100-shareholder limit, it no longer qualifies for S Corp status and must convert to a C Corp.
• Bringing in foreign investors: S Corps cannot have non-U.S. citizens or non-resident alien shareholders. If you plan to accept international investment, you will need to revoke.
• Planning to go public or raise venture capital: Most institutional investors and IPO structures require C Corp status with multiple classes of stock, which S Corps cannot issue.
• Tax strategy changes: At higher income levels, the C Corp flat federal rate (21%) plus qualified dividend treatment may outperform pass-through taxation at the owner level.
• Simplifying structure: Owners who no longer benefit from payroll-tax savings may return to LLC or C Corp taxation to reduce compliance costs.

How to Revoke

At the federal level, the S Corp election can be revoked by filing a statement of revocation with the IRS, signed by shareholders holding more than 50% of the outstanding shares. The revocation is effective the first day of the tax year if filed by the 15th day of the third month; later filings take effect the following tax year.[3]

Because Arkansas auto-recognizes the federal S election under Ark. Code Ann. § 26-51-409(b), a federal revocation automatically terminates the Arkansas S Corporation status. There is no separate state revocation form. The entity will then file as a C Corporation in Arkansas (Form AR1100CT) for tax years beginning after the federal revocation date. Once revoked, you generally cannot re-elect S Corp status for five years without IRS consent.[1]

Arkansas Taxes for S Corporations

Annual Franchise Tax

All Arkansas corporations (including S Corps) pay an annual franchise tax to the Secretary of State based on outstanding capital stock value. Stock corporations pay 0.3% of capital stock apportioned to Arkansas, with a $150 minimum. Corporations without authorized stock pay a $300 flat fee. The report and payment are due May 1, regardless of fiscal year-end.[5]

Pass-Through Entity Tax (Elective)

Arkansas’s Elective Pass-Through Entity Tax (PET), created by Act 362 of 2021 and codified at Ark. Code Ann. Title 26, Chapter 65, allows S Corps, partnerships, and LLCs taxed as either to pay Arkansas income tax at the entity level instead of passing it through to shareholders. The PET tax rate equals the highest Arkansas individual income tax rate, 3.9% on ordinary income and 1.95% on capital gains for tax years beginning in 2024 or later.[7]

The election must be made by owners representing more than 50% of the voting power, on or before the extended due date of the return, by filing Form AR362 or registering for PET in ATAP. The return (Form AR1100PET) is due April 15 for calendar-year filers. Shareholders’ share of PET-taxed income is then exempt from Arkansas personal income tax under § 26-51-404(b), preserving the federal SALT deduction at the entity level.[7]

PET is not available to C Corporations, qualified Subchapter S subsidiaries (QSSSs), trusts, sole proprietorships, or LLCs taxed as C Corporations.[7]

Shareholder Personal Income Tax

If you do not elect PET, shareholders pay Arkansas personal income tax on their pro rata share of S Corp pass-through items. The top Arkansas individual rate is 3.9% for tax years beginning on or after January 1, 2024 (Act 1 of the Second Extraordinary Session of 2024). Nonresident and part-year resident shareholders pay tax only on the share derived from Arkansas sources.[1] [9]

S Corps with nonresident shareholders must either withhold Arkansas income tax on distributions attributable to Arkansas income or file a composite return (Form AR1000CR) covering those shareholders. Withholding is not required if the nonresident’s Arkansas-source income is under $1,000, the income is exempt, or other statutory exceptions apply.[1]

Sales and Use Tax

If your S Corp sells tangible personal property or taxable services in Arkansas, register for a sales tax permit with the Arkansas DFA Sales and Use Tax Section. The Arkansas state sales tax rate is 6.5%; local jurisdictions may add additional rates of up to 5%. Returns are typically due monthly or quarterly depending on volume.[10]

Cost Breakdown: Starting an S Corp in Arkansas

S Corp vs. LLC in Arkansas: Comparison

Is an S Corp Right for Your Arkansas Business?

The S Corp election makes the most financial sense when your net business income is high enough that the self-employment tax savings outweigh the cost of running payroll and the additional compliance burden. Use this guide:

Keep in mind that Arkansas’s $150 minimum franchise tax, payroll setup costs, and ongoing CPA fees together add roughly $800 to $2,500 in annual costs. S Corps also have ownership restrictions that may not suit every business model. Before electing, consult a CPA or tax attorney about your specific facts.

Annual Requirements at a Glance

Bibliography

[1] Arkansas Department of Finance and Administration. 2025 Sub-Chapter S Corporation Income Tax Instructions. Accessed May 18, 2026.

[2] Arkansas Secretary of State. Forms and Fees: Corporations. Accessed May 18, 2026.

[3] IRS. Instructions for Form 2553. Accessed May 18, 2026.

[4] Arkansas Code Annotated, Title 4, Chapter 20 (Model Registered Agents Act), § 4-20-105. Accessed May 18, 2026.

[5] Arkansas Secretary of State. Franchise Tax (A.C.A. §§ 26-54-101 et seq.). Accessed May 18, 2026.

[6] Arkansas Department of Finance and Administration. Corporation Income Tax. Accessed May 18, 2026.

[7] Arkansas Department of Finance and Administration. Pass-Through Entity Tax (Act 362 of 2021). Accessed May 18, 2026.

[8] IRS. Where to File Your Taxes (for Form 2553). Accessed May 18, 2026.

[9] Arkansas Department of Finance and Administration. Income Tax Withholding Tables Adjusted Due to Most Recent Tax Cut. Accessed May 18, 2026.

[10] Arkansas Department of Finance and Administration. Sales and Use Tax. Accessed May 18, 2026.

[11] Arkansas Division of Workforce Services. Employer UI Information. Accessed May 18, 2026.

[12] Arkansas Department of Finance and Administration. Withholding Tax Branch. Accessed May 18, 2026.

[13] IRS. S Corporations. Accessed May 18, 2026.

Official Resources

• Arkansas Secretary of State. Articles of Incorporation, registered agent filings, and Annual Franchise Tax Reports.