Excellent
7,486 reviews
An S Corporation is not a separate 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 federal 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. [12]
DC is one of a handful of jurisdictions that do not conform to the federal S election. DC Code section 47-1801.04(10)(B) classifies an S Corp (as defined in IRC section 1361(a)) as a "corporation" for DC tax purposes. As a result, your DC S Corp files Form D-20 and pays the 8.25% Corporation Franchise Tax at the entity level on DC taxable income, with a minimum tax of $250 (if DC gross receipts are $1 million or less) or $1,000 (if DC gross receipts exceed $1 million). [1] [2]
The pass-through treatment that S Corp owners enjoy in most states is denied at the DC level. The federal benefit (avoiding 15.3% self-employment tax on distributions above a reasonable salary) still applies, and that is generally the main reason DC business owners elect S Corp status. If you primarily wanted to avoid double taxation in DC, an S Corp election would not achieve that. Your DC tax liability is computed the same way as a C Corp. [1] [2]
For business owners earning roughly $60,000 or more in net business income, the federal self-employment tax savings from the S Corp election can still be significant. 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, at the federal level.
| Action | Deadline | Notes |
|---|---|---|
| File IRS Form 2553 | Within 2 months and 15 days after the start of the tax year | For a January 1 tax year, the deadline is March 15. Late election relief may be available under IRS Rev. Proc. 2013-30. [3] |
| File Form D-20 (DC Corporation Franchise Tax) | April 15 (calendar-year filers) | 15th day of the 4th month after the close of the tax year. S Corps file D-20 in DC because the federal S election is not recognized. [1] [16] |
| File Form 1120-S (Federal) | March 15 (calendar-year filers) | Distribute Schedule K-1s to shareholders. [3] |
| Pay quarterly estimated DC franchise tax | April 15, June 15, September 15, December 15 | Required if the expected DC franchise tax exceeds $1,000 for the year. Use Form D-20ES. [16] |
| File Biennial Report (Form BRA-25) | April 1 of the year after formation, then every 2 years | Filed with DLCP Corporations Division. $300 fee plus $100 late fee.[9] [10] |
| Set up payroll | Before paying yourself a salary | Register with the DC Department of Employment Services (DOES) for unemployment insurance and with the DC Office of Tax and Revenue (OTR) for withholding before issuing W-2 wages. [11] |
An S Corp is a tax classification, not a standalone entity. You must have an active DC corporation or LLC on file with DLCP 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 DC LLC or corporation? Move to Step 1.
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 for the election to take effect. For a calendar-year corporation electing S Corp status for 2026, the deadline is March 15, 2026. [3]
Form 2553 collects the following information:
All shareholders must sign the consent portion of the form before submission. An unsigned form will be rejected by the IRS.
You can submit Form 2553 by mail or fax. There is no IRS filing fee.
If your principal business office is located in the District of Columbia, mail Form 2553 to: Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999. [8]
Fax number for DC businesses: 855-887-7734. [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.
There is no separate DC S election form because DC does not treat S Corps as pass-throughs. Once the IRS accepts your Form 2553, your business remains a "corporation" for DC tax purposes under DC Code section 47-1801.04 and continues to file Form D-20 Corporation Franchise Tax Return with the DC Office of Tax and Revenue. [1] [16]
Plan for the DC franchise tax as part of your cash flow. The S Corp election is a federal tax benefit only. At the DC level, your entity is taxed the same as a C Corp.
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.
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.
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.
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.
Every DC business entity must file Form BRA-25 (Two-Year Report for Domestic and Foreign Filing Entity) with DLCP by April 1 of the year following formation, and by April 1 every two years after that. The filing fee is $300, with a $100 late fee. Failure to file can lead to administrative dissolution. [9] [10]
File IRS Form 1120-S and distribute Schedule K-1s to all shareholders by March 15 (calendar-year filers). File DC Form D-20 by April 15, paying the 8.25% Corporation Franchise Tax on DC taxable income, with the applicable $250 or $1,000 minimum tax. [2] [16]
A six-month federal extension is available by filing Form 7004. DC offers a six-month extension for Form D-20 by filing Form FR-128 and paying any expected balance by the original April 15 due date. [16]
Pay quarterly estimated DC franchise tax through MyTax.DC.gov if your DC franchise tax liability is expected to exceed $1,000 for the year. Use Form D-20ES to remit estimated payments by April 15, June 15, September 15, and December 15. [16]
DC late-filing penalty equals 5% of the unpaid tax per month (max 25%), plus interest at the federal short-term rate plus 2%. Continued non-filing can result in administrative dissolution by DLCP.[16]
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 federal 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]
At the DC level, a missed federal election does not change your DC tax filing. You file Form D-20 and pay DC Corporation Franchise Tax either way. [1] [2]
At the federal level, the S Corp election is 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 on 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]
At the DC level, no separate revocation is needed because the District does not recognize the federal S election in the first place. The entity continues to file Form D-20 either way. Once revoked federally, you generally cannot re-elect S Corp status for five years without IRS consent. [1]
DC S Corps pay the 8.25% Corporation Franchise Tax on DC taxable income, reported on Form D-20. The minimum tax is $250 if DC gross receipts are $1 million or less, and $1,000 if DC gross receipts are greater than $1 million. There is no entity-level reduction because the federal S election is not recognized. [1] [2]
| Entity Type | DC Entity-Level Tax |
|---|---|
| S Corporation | 8.25% Corporation Franchise Tax on Form D-20 (S election not recognized). Minimum $250 or $1,000. [1] [2] |
| C Corporation | 8.25% Corporation Franchise Tax on Form D-20. Minimum $250 or $1,000. [2] |
| Multi-member LLC (partnership) | 8.25% Unincorporated Business Franchise Tax on Form D-30 if subject. 30% owner-salary allowance and $5,000 exemption apply. Minimum $250 or $1,000. [2] [17] |
| Sole prop / single-member LLC | No DC franchise tax if 80% of gross income is from personal services and capital is not material. Owner pays DC individual tax (up to 10.75%). [2] [6] |
DC individual income tax is graduated up to 10.75% on income over $1 million. Because the S Corp is taxed at the entity level on Form D-20, DC does not give shareholders a personal pass-through inclusion the way most states do. DC shareholders still pay individual tax on wages, distributions treated as compensation, and any other DC-source personal income at the graduated DC rates. [6]
The general DC sales and use tax rate is 6% on tangible personal property and many services. Higher rates apply to specific categories (for example, restaurant meals at 10%, hotel occupancy at 14.95%, parking at 18%, and commercial parking surcharges). Register through MyTax.DC.gov. [7]
| Item | Cost |
|---|---|
| Articles of Incorporation (DLCP, authorized capital up to $100,000) | $99 [9] |
| Certificate of Organization, LLC (DLCP) | $99 [13] |
| IRS Form 2553 filing | No fee [3] |
| Federal EIN (Form SS-4) | No fee |
| Biennial Report (Form BRA-25) | $300 [9] [10] |
| DLCP biennial report late fee (for-profit) | $100 [9] |
| Expedited same-day DLCP service | $100 in addition to other fees [5] |
| Expedited 3-day DLCP service | $50 in addition to other fees [5] |
| Registered Agent service (typical commercial) | $100 to $300 per year |
| Feature | S Corporation | LLC |
|---|---|---|
| Formation Document | Articles of Incorporation ($99) [9] | Certificate of Organization ($99) [13] |
| Federal Tax Treatment | Pass-through (Form 1120-S) | Pass-through by default (Form 1065 or Schedule C) |
| DC Tax Treatment | Files Form D-20 at 8.25% (S election ignored) [1] [2] | Files Form D-30 at 8.25% if subject; possible 80% personal-services exemption [2] [17] |
| Biennial Report | Form BRA-25 ($300) [9] | Form BRA-25 ($300) [13] |
| Self-Employment Tax (Federal) | Only on a W-2 salary | 15.3% on all net earnings |
| Ownership Limits | Max 100 U.S.-person shareholders, one class of stock | Unlimited members, any type |
| Management | Directors and officers required | Flexible; member or manager managed |
| Reasonable Salary Required | Yes | No |
| Minimum DC Franchise Tax | $250 or $1,000 [2] | $250 or $1,000 if subject to D-30 [2] |
| Biennial Report Deadline | April 1 every 2 years | April 1 every 2 years |
| Best For | Owners earning $60K+ wanting federal SE-tax savings | Small businesses prioritizing simplicity |
The S Corp election makes sense in DC when the federal self-employment tax savings outweigh the cost of running payroll and the additional compliance burden. Remember that the DC franchise tax applies either way, so the S Corp election is a federal tax question, not a DC one. Use this guide:
| Net Business Income | Recommendation |
|---|---|
| Under $40,000 | An S Corp likely does not make sense. Federal payroll savings are small, and the DC franchise tax still applies. |
| $40,000 to $60,000 | Borderline. Run the numbers with a CPA. Savings may be modest after payroll-service fees. |
| $60,000 to $100,000 | S Corp election usually saves $2,000 to $5,000 per year in federal self-employment taxes. |
| $100,000 to $200,000 | Strong candidate. Federal savings often range from $5,000 to $10,000+ per year. |
| Over $200,000 | Almost always advantageous unless you have specific reasons (foreign investors, IPO plans) to remain a C Corp or LLC. |
Keep in mind that DC’s $300 biennial report fee, the $250 or $1,000 minimum franchise tax, payroll setup costs, and ongoing CPA fees together typically add roughly $1,000 to $3,000 in annual costs. S Corps also have ownership restrictions that may not suit every business model.
| Requirement | Details |
|---|---|
| Form 1120-S (Federal) | Due March 15. Reports S Corp income at the federal level. Distribute K-1s to shareholders. |
| Form D-20 (DC Corporation Franchise Tax) | Due April 15. Pays 8.25% on DC taxable income with a minimum tax of $250 or $1,000. [2] [16] |
| Biennial Report (Form BRA-25) | Filed with DLCP by April 1 every two years. $300 fee, $100 late fee. [9] [10] |
| Form 941 (Federal Payroll Tax) | Filed quarterly. Reports federal income tax, Social Security, and Medicare withheld. |
| DC Withholding (FR-900Q / FR-900A) | DC quarterly or annual withholding return filed with OTR via MyTax.DC.gov. |
| DOES UI quarterly wage report | Quarterly UI contribution and wage report filed with the DC Department of Employment Services. UI applies to the first $9,000 of wages per employee. [11] |
| W-2s and 1099s | Distributed by January 31. Filed with the IRS, Social Security Administration, and DC Office of Tax and Revenue. |
| Estimated Tax Payments | Quarterly federal and DC estimated tax if the expected DC franchise liability exceeds $1,000. Use Form D-20ES. [16] |
| Registered Agent Maintenance | Maintain a registered agent with a physical DC address at all times. [15] |
[1] DC Council. DC Code section 47-1801.04 (Definitions classifying an S Corp as a "corporation"). Accessed May 19, 2026.
[2] DC Office of Tax and Revenue. DC Business Franchise Tax Rates (8.25% Corporation and Unincorporated Business). Accessed May 19, 2026.
[3] IRS. Instructions for Form 2553. Accessed May 19, 2026.
[4] DC Council. DC Code section 29-104.02 (Registered Agent Required). Accessed May 19, 2026.
[5] DLCP Corporations Division. Fees for Corporate Registration Services (index). Accessed May 19, 2026.
[6] DC Office of Tax and Revenue. DC Individual and Fiduciary Income Tax Rates. Accessed May 19, 2026.
[7] DC Office of Tax and Revenue. Sales and Use Tax (DC general rate 6%). Accessed May 19, 2026.
[8] IRS. Where to File Your Taxes (for Form 2553). Accessed May 19, 2026.
[9] DLCP. Corporations Division Fees, Business Corporation (Articles $99; Biennial $300). Accessed May 19, 2026.
[10] DLCP. Corporations Division: Business Registration FAQs (Biennial Report due April 1 every 2 years). Accessed May 19, 2026.
[11] DC Department of Employment Services. UI Tax for Employers. Accessed May 19, 2026.
[12] IRS. S Corporations. Accessed May 19, 2026.
[13] DLCP. Corporations Division Fees, Limited Liability Company ($99 cert of organization; $300 biennial). Accessed May 19, 2026.
[14] DLCP. Register a Domestic For-Profit and Benefit For-Profit Corporation. Accessed May 19, 2026.
[15] DC Council. DC Code section 29-104.04 (Designation of Registered Agent). Accessed May 19, 2026.
[16] DC Office of Tax and Revenue. Corporate Business Franchise Tax Forms (D-20 and Instructions). Accessed May 19, 2026.
[17] DC Office of Tax and Revenue. Unincorporated Business Franchise Tax Forms (D-30 and Instructions). Accessed May 19, 2026.
