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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 generally does not pay federal income tax. Instead, income, losses, deductions, and credits flow through to shareholders, who report them on their personal returns.[11]
Massachusetts treats federal S Corporations as S Corporations for state tax purposes. An S Corporation passes its income, losses, and deductions through to shareholders, who report and pay tax on those items on their individual returns. Massachusetts S Corps file Form 355S and must also include a Massachusetts Schedule S and a Schedule SK-1 for each shareholder.[1]
Massachusetts is different from most states in one important way. An S Corp here still owes an entity-level corporate excise. The excise has a non-income measure of $2.60 per $1,000 of taxable Massachusetts tangible property or net worth, plus an income measure that applies a 2.0% or 3.0% rate once the S Corporation has $6 million or more in total receipts. Every S Corp is also subject to a minimum excise of $456.[1]
For business owners earning $60,000 or more in net business income, the S Corp election can still 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 355S (Massachusetts) | March 15 (calendar-year filers) | Due on the 15th day of the 3rd month after the close of the taxable year, with payment in full of any corporate excise due.[1] |
| File Form 1120-S (Federal) | March 15 (calendar-year filers) | Distribute Schedule K-1s to shareholders. Massachusetts S Corps also issue Schedule SK-1.[3] |
| File Form 355S extension | On or before March 15 | S Corporations meeting certain payment requirements receive an automatic six-month extension. Payment of any balance due is still required by March 15.[1] |
| Elect the PTE excise (Form 63D-ELT) | By the original or extended return due date | The election is made on Form 355S, then Form 63D-ELT is filed. The election is annual.[7] |
| Pay estimated corporate excise | Quarterly during the tax year | Required if the S Corporation reasonably estimates its excise will exceed $1,000 for the taxable year.[1] |
| File the corporate Annual Report | Within 2.5 months of fiscal year end | Filed with the Secretary of the Commonwealth. The fee is $125 by paper or $100 online.[2] |
| Set up payroll | Before paying yourself a salary | Register with the Massachusetts Department of Revenue for withholding and with the Department of Unemployment Assistance for unemployment insurance before issuing W-2 wages.[10] |
An S Corp is a tax classification, not a standalone entity. You must have an active Massachusetts corporation or LLC on file with the Secretary of the Commonwealth 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 Massachusetts, mail Form 2553 to: Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999.[8]
Fax number for Massachusetts 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.
Massachusetts automatically follows the federal S Corp classification. Once your federal Form 2553 is accepted, Massachusetts treats your business as an S Corp for tax purposes. There is no separate Massachusetts election form to submit. You report your S Corp status when you file Form 355S.[1]
After your federal acceptance, keep a copy of your IRS CP261 acceptance letter with your corporate records and your first Form 355S 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 owner 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 Massachusetts corporation must file an annual report with the Secretary of the Commonwealth within 2.5 months after the close of its fiscal year. The fee is $125 for a paper filing or $100 if filed online, with a $150 fee if the report is not filed on time. Failure to file can lead to administrative dissolution.[2]
File IRS Form 1120-S and distribute Schedule K-1s to shareholders by March 15 for calendar-year filers. File Massachusetts Form 355S by the same March 15 deadline, including a Schedule S and a Schedule SK-1 for each shareholder, with payment of any corporate excise due.[1]
Massachusetts S Corporations that meet certain payment requirements receive an automatic six-month extension to file Form 355S. The extension applies to filing only; any balance due must still be paid by the original March 15 deadline.[1]
All S Corporations that reasonably estimate their corporate excise will exceed $1,000 for the taxable year must make estimated tax payments to the Commonwealth during the year.[1]
Massachusetts charges a late-filing penalty of 1% of the unpaid tax per month, up to 25%, plus a separate late-payment penalty and interest on any unpaid corporate excise. Filing and paying the Form 355S excise on time avoids these charges.[5]
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 or 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 Massachusetts follows the federal S election automatically, there is no separate state late-election process. Once the IRS grants late election relief, Massachusetts treats the entity as an S Corporation for the same tax year on Form 355S.[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 Massachusetts follows the federal classification, a federal revocation automatically ends the Massachusetts S Corp status. The entity then files as a C Corporation on Form 355 for tax years beginning after the revocation. Once revoked, you generally cannot re-elect S Corp status for five years without IRS consent.[1]
Massachusetts is unusual because an S Corp pays an entity-level corporate excise, not a fully pass-through tax. The excise has two parts. The non-income measure is $2.60 per $1,000 of taxable Massachusetts tangible personal property or taxable net worth. The income measure is a receipts-based tax: an S Corp with total receipts of $6 million or more but less than $9 million pays 2.0% on net income subject to tax, and an S Corp with total receipts of $9 million or more pays 3.0%. An S Corp with total receipts under $6 million owes no income measure. Every S Corp is also subject to a minimum corporate excise of $456.[1]
| Corporate Excise Component | Amount |
|---|---|
| Non-income measure (property or net worth) | $2.60 per $1,000 of taxable tangible property or net worth[1] |
| Income measure, total receipts under $6 million | No entity-level income measure[1] |
| Income measure, total receipts $6 million to $9 million | 2.0% on net income subject to tax[1] |
| Income measure, total receipts $9 million or more | 3.0% on net income subject to tax[1] |
| Minimum corporate excise | $456[1] |
Massachusetts enacted an elective pass-through entity excise under Chapter 63D of the General Laws on September 30, 2021, in response to the federal cap on the state and local tax deduction. An S Corporation may elect annually to pay a 5% excise on the income that flows through to shareholders subject to Massachusetts personal income tax. The election is made on Form 355S, and the entity then files Form 63D-ELT.[7]
Qualified shareholders of an electing S Corporation receive a personal income tax credit equal to 90% of their distributive share of the PTE excise paid. The election is made on a year-by-year basis.[7]
Massachusetts taxes individuals at a flat 5.0% rate on most income, including the pass-through income an S Corp shareholder reports. A 4% surtax applies on top of the 5.0% rate to taxable income above an inflation-indexed threshold. The surtax threshold was $1,000,000 in 2023 and rose to $1,083,150 for tax year 2025, so high-income shareholders should plan for the surtax.[9]
Massachusetts charges a 6.25% state sales and use tax on most retail sales of tangible personal property and certain services. There are no additional local sales taxes. Register with the Massachusetts Department of Revenue if your S Corp sells taxable goods or services.[6]
| Item | Cost |
|---|---|
| Articles of Organization (corporation) | $275 for up to 275,000 authorized shares[2] |
| Certificate of Organization (LLC alternative) | $500[2] |
| IRS Form 2553 filing | No fee[3] |
| Federal EIN (Form SS-4) | No fee |
| Corporate Annual Report | $125 by paper or $100 online[2] |
| Minimum corporate excise | $456 per year[1] |
| Registered Agent service (typical commercial) | $100 to $300 per year |
| Feature | S Corporation | LLC |
|---|---|---|
| Formation Document | Articles of Organization ($275) | Certificate of Organization ($500) |
| Federal Tax Treatment | Pass-through (Form 1120-S) | Pass-through by default (Form 1065 or Schedule C) |
| Massachusetts Tax Treatment | Form 355S; entity-level corporate excise applies | Form 3 or no return (disregarded); no corporate excise |
| Annual Report | $125 paper or $100 online | $500 ($450 if filed electronically) |
| Annual Report Deadline | Within 2.5 months of fiscal year end | On the anniversary date |
| 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 Excise Election | Yes (5%) | Yes if taxed as S Corp or partnership |
| 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, the $456 minimum corporate excise, and the additional compliance burden. Use this guide:
| Net Business Income | Recommendation |
|---|---|
| Under $40,000 | An S Corp likely does not make sense. Payroll, the minimum excise, 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 fees and the minimum excise. |
| $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 or more 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 the $456 minimum corporate excise, the $125 annual report fee, payroll setup costs, and ongoing CPA fees together 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. Distribute K-1s to shareholders. |
| Form 355S (Massachusetts) | Due March 15. Computes the corporate excise, includes Schedule S, and issues Schedule SK-1 to each shareholder.[1] |
| Corporate Annual Report | Filed with the Secretary of the Commonwealth within 2.5 months of fiscal year end. Fee is $125 paper or $100 online.[2] |
| Form 941 (Federal Payroll Tax) | Filed quarterly. Reports federal income tax, Social Security, and Medicare withheld. |
| Massachusetts Withholding Returns | Massachusetts wage withholding returns filed with the Department of Revenue.[10] |
| DUA Quarterly Wage Report | Quarterly unemployment insurance contribution and wage report filed with the Department of Unemployment Assistance.[10] |
| W-2s and 1099s | Distributed by January 31. Filed with the IRS, Social Security Administration, and Massachusetts Department of Revenue. |
| Estimated Corporate Excise | Quarterly payments if estimated excise exceeds $1,000 for the year.[1] |
| PTE Excise Election (if applicable) | Made annually on Form 355S, then filed on Form 63D-ELT.[7] |
| Registered Agent Maintenance | Keep a registered agent and registered office current with the Secretary of the Commonwealth.[4] |
Bibliography
[1] Massachusetts Department of Revenue. S Corporations. Accessed May 20, 2026.
[2] Secretary of the Commonwealth of Massachusetts. Corporations Division Filing Fees. Accessed May 20, 2026.
[3] IRS. Instructions for Form 2553. Accessed May 20, 2026.
[4] Massachusetts General Court. M.G.L. c. 156D, Section 5.01 (Registered Office and Registered Agent). Accessed May 20, 2026.
[5] Massachusetts Department of Revenue. DOR Corporate Excise Tax Forms and Instructions. Accessed May 20, 2026.
[6] Massachusetts Department of Revenue. Massachusetts Tax Rates. Accessed May 20, 2026.
[7] Massachusetts Department of Revenue. Elective Pass-through Entity Excise. Accessed May 20, 2026.
[8] IRS. Instructions for Form 2553 (Where to File). Accessed May 20, 2026.
[9] Massachusetts Department of Revenue. 4% Surtax on Taxable Income Over $1,000,000. Accessed May 20, 2026.
[10] Commonwealth of Massachusetts. Employer Tax Obligations. Accessed May 20, 2026.
[11] IRS. S Corporations. Accessed May 20, 2026.
Official Resources
