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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 Illinois, an S Corporation files Form IL-1120-ST, Small Business Corporation Replacement Tax Return, and pays the 1.5% Personal Property Replacement Tax (PPRT) on Illinois net income at the entity level. Illinois does not impose the 7% corporate income tax on S Corps. Shareholders then pay the 4.95% Illinois individual flat tax on their pro rata share of pass-through income. [1] [6]
Illinois also offers an elective Pass-Through Entity (PTE) tax at 4.95%, originally enacted by Public Act 102-0658 and made permanent by Public Act 104-0453 in December 2025. The PTE election lets the entity pay state income tax at the entity level, preserving the federal SALT deduction for shareholders. [7] [14]
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.
| 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 IL-1120-ST (Illinois) | March 15 (calendar-year filers) | 15th day of the 3rd month after the close of the tax year. Same deadline as the federal Form 1120-S. [9] |
| File Form 1120-S (Federal) | March 15 (calendar-year filers) | Distribute Schedule K-1s to shareholders. [3] |
| File Form IL-1120-ST extension | On or before March 15 | Illinois grants an automatic 7-month extension for S Corps (longer than the federal 6-month extension). Payment of any balance due is still required by March 15. [9] |
| Elect Illinois PTE tax (Form IL-1120-ST checkbox) | By the original or extended due date | Made by checking the PTE election box on Form IL-1120-ST. The election is annual. [7] |
| Pay quarterly estimated tax | April 15, June 15, September 15, December 15 | Required if expected Illinois liability (replacement tax or PTE) exceeds $400. [9] |
| File Annual Report (Form BCA 14.05) | Before the first day of the anniversary month | Filed with the Illinois Secretary of State. Base fee $75 plus residual franchise tax. Late penalty applies if filed after the due date. [5] |
| Set up payroll | Before paying yourself a salary | Register with the Illinois Department of Employment Security (IDES) for unemployment insurance and with the Illinois Department of Revenue for withholding before issuing W-2 wages. [11] [12] |
An S Corp is a tax classification, not a standalone entity. You must have an active Illinois 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.
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]
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 filing fee.
If your principal business office is located in Illinois, mail Form 2553 to: Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999. [8]
Fax number for Illinois 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.
Illinois follows the federal S Corp classification automatically. Once your federal Form 2553 is accepted, Illinois will treat your business as an S Corp for tax purposes when you file Form IL-1120-ST. There is no separate Illinois election form to submit. [1]
After your federal acceptance, attach a copy of your IRS CP261 acceptance letter to your first Form IL-1120-ST filing as documentation.
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 owners’ 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 Illinois corporation must file Form BCA 14.05 with the Secretary of State before the first day of the corporation’s anniversary month. The base filing fee is $75 plus residual franchise tax (1/10 of 1% of Illinois-allocated paid-in capital, with a $10,000 exemption for 2025 reports). Failure to file on time triggers a $25 base penalty and may lead to administrative dissolution. [5]
File IRS Form 1120-S and distribute Schedule K-1s to all shareholders by March 15 (calendar-year filers). File Illinois Form IL-1120-ST by the same March 15 deadline, paying the 1.5% PPRT on Illinois net income. [9]
Illinois grants an automatic 7-month extension for S Corp returns (longer than the federal 6-month extension under Form 7004). No separate Illinois extension form is required if the federal extension is filed; payment of any balance due is still required by March 15. [9]
Pay quarterly estimated tax through MyTax Illinois if your S Corp expects to owe more than $400 in Illinois replacement tax or PTE tax after credits. Use Form IL-1120-ST-V to remit estimated payments. [9]
Illinois late-filing penalty equals 2% of the tax due per month (max 20%), plus a 15% late-payment penalty if 90 days late, plus interest at the federal short-term rate plus 3%. Failure to file a return at all is treated as a non-filer subject to additional penalties. [9]
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 Illinois follows the federal S election automatically, there is no separate state late-election process. Once the IRS grants late election relief, Illinois will treat the entity as an S Corporation for the same tax year. [1]
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 Illinois follows the federal classification, a federal revocation automatically terminates the Illinois S Corp status. The entity then files as a C Corp on Form IL-1120 for tax years beginning after the federal revocation. Once revoked, you generally cannot re-elect S Corp status for five years without IRS consent. [1]
Illinois S Corps pay the 1.5% PPRT on Illinois net income at the entity level, reported on Form IL-1120-ST. This is the only entity-level Illinois income tax that applies; the 7% corporate income tax applies to C Corps only. [1]
| Entity Type | Illinois Entity-Level Tax |
|---|---|
| S Corporation | 1.5% PPRT only [1] |
| Partnership / LLC (partnership) | 1.5% PPRT only [1] |
| C Corporation | 7% corporate income tax + 2.5% PPRT \= 9.5% combined [6] |
| Sole prop / disregarded LLC | No entity-level tax; owner pays 4.95% individual rate [6] |
Illinois’s elective PTE tax, originally enacted by Public Act 102-0658 (2021) and made permanent by Public Act 104-0453 in December 2025, lets S Corps pay state income tax at the entity level at 4.95%. The election is made annually by checking the PTE box on Form IL-1120-ST. Income subject to the PTE is excluded from the shareholders’ Illinois personal income tax base, preserving the federal SALT deduction. [7] [14]
Estimated PTE tax payments are required at 90% of current-year liability or 100% of prior-year liability. The PTE election is made on a year-by-year basis. [7]
Illinois imposes a flat 4.95% individual income tax on shareholders’ pro rata share of S Corp pass-through income (if PTE is not elected). Nonresident shareholders pay tax only on the share derived from Illinois sources, with pass-through withholding reported on Schedule B of Form IL-1120-ST. [6] [9]
Illinois state sales tax is 6.25% on general merchandise, with reduced rates on qualifying food, drugs, and medical appliances. Local jurisdictions add up to 4.75%. Register through MyTax Illinois. [10]
| Item | Cost |
|---|---|
| Articles of Incorporation (Form BCA 2.10) | $150 base + initial franchise tax [2] |
| Articles of Organization, LLC (Form LLC-5.5) | $150 standard [2] |
| IRS Form 2553 filing | No fee [3] |
| Federal EIN (Form SS-4) | No fee |
| Annual Report (Form BCA 14.05) | $75 base + residual franchise tax [5] |
| Registered Agent service (typical commercial) | $100 to $300 per year |
| Optional: expedited filing service | $50 to $100 per filing [2] |
| Feature | S Corporation | LLC |
|---|---|---|
| Formation Document | Articles of Incorporation ($150) | Articles of Organization ($150) |
| Federal Tax Treatment | Pass-through (Form 1120-S) | Pass-through by default (Form 1065 or Schedule C) |
| Illinois Tax Treatment | IL-1120-ST; 1.5% PPRT | IL-1065 or no return (disregarded) |
| Annual Report | Form BCA 14.05 ($75 base) | Form LLC-50.1 ($75) |
| Self-Employment Tax | Only on 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 |
| PTE Election Available | Yes (4.95%, now permanent) | Yes if taxed as S Corp or partnership |
| Annual Reporting Deadline | Before 1st day of anniversary month | Before 1st day of anniversary month |
| Best For | Owners earning $60K+ wanting SE-tax savings | Small businesses prioritizing simplicity |
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:
| Net Business Income | Recommendation |
|---|---|
| Under $40,000 | An S Corp likely does not make sense. Payroll and compliance costs typically erase the savings. |
| $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 self-employment taxes. |
| $100,000 to $200,000 | Strong candidate. Savings often $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 Illinois’s $75 annual report fee, residual 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.
| Requirement | Details |
|---|---|
| Form 1120-S (Federal) | Due March 15. Reports S Corp income. Distribute K-1s to shareholders. |
| Form IL-1120-ST (Illinois) | Due March 15. Reports Illinois net income, computes 1.5% PPRT, and issues Schedule K-1-P to shareholders. [9] |
| Annual Report (Form BCA 14.05) | Filed with the Illinois Secretary of State before the first day of the anniversary month. Base $75 fee plus residual franchise tax. [5] |
| Form 941 (Federal Payroll Tax) | Filed quarterly. Reports federal income tax, Social Security, and Medicare withheld. |
| Form IL-941 | Illinois quarterly withholding return filed with IDOR. [12] |
| UI-3/40 (IDES quarterly report) | Quarterly UI contribution and wage report filed with the Illinois Department of Employment Security. [11] |
| W-2s and 1099s | Distributed by January 31. Filed with the IRS, the Social Security Administration, and the Illinois Department of Revenue. |
| Estimated Tax Payments | Quarterly federal and Illinois estimated tax if the expected liability exceeds $400. |
| PTE Election (if applicable) | Made annually by checking the PTE box on Form IL-1120-ST. [7] |
| Registered Agent Maintenance | Keep the agent and physical Illinois address current with the Secretary of State. |
[1] Illinois Department of Revenue. Subchapter S (Small Business) Corporation. Accessed May 18, 2026.
[2] Illinois Secretary of State. Form BCA 2.10, Articles of Incorporation. Accessed May 18, 2026.
[3] IRS. Instructions for Form 2553. Accessed May 18, 2026.
[4] Illinois General Assembly. 805 ILCS 5/5.05 (Registered Office and Registered Agent). Accessed May 18, 2026.
[5] Illinois Secretary of State. Corporation Annual Report Instructions (Form BCA 14.05). Accessed May 18, 2026.
[6] Illinois Department of Revenue. Tax Rate Database (Income Tax). Accessed May 18, 2026.
[7] Illinois Department of Revenue. Pass-Through Entity (PTE) Tax Q\&A. Accessed May 18, 2026.
[8] IRS. Where to File Your Taxes (for Form 2553). Accessed May 18, 2026.
[9] Illinois Department of Revenue. 2025 Instructions for Form IL-1120-ST. Accessed May 18, 2026.
[10] Illinois Department of Revenue. Illinois Tax Rate Database (Sales Tax). Accessed May 18, 2026.
[11] Illinois Department of Employment Security. New Employer Registration (REG-UI-1). Accessed May 18, 2026.
[12] Illinois Department of Revenue. Withholding Income Tax (Form IL-941). Accessed May 18, 2026.
[13] IRS. S Corporations. Accessed May 18, 2026.
[14] Illinois Department of Revenue. Informational Bulletin FY 2026-15 (PTE made permanent by PA 104-0453). Accessed May 18, 2026.
