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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 Michigan, an S Corporation is a flow-through entity. It is not subject to the 6.0% Michigan Corporate Income Tax (CIT), which applies only to C Corporations and entities taxed as corporations federally. Shareholders pay Michigan individual income tax on their pro rata share at the flat 4.25% rate. [1] [9]
Michigan also offers an elective Flow-Through Entity Tax (FTE tax) under Part 4 of the Income Tax Act (MCL 206.801 et seq.), enacted by Public Act 135 of 2021. A qualifying S Corp may elect to pay state income tax at the entity level at the same rate as the individual income tax (4.25% for tax years beginning in 2024 and later), preserving the federal SALT deduction for shareholders. [7] [12]
For business owners earning roughly $60,000 or more in net business income, the S Corp election can provide meaningful self-employment tax savings.
| 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 Federal Form 1120-S | March 15 (calendar-year filers) | Distribute Schedule K-1s to all shareholders. [13] |
| File Michigan Form 5772 (if FTE elected) | Last day of the 3rd month after year end (March 31 for calendar filers) | Annual flow-through entity tax return required only when the FTE tax election is made. [7] |
| Make FTE election | On or before the 15th day of the 3rd month of the tax year | Election is made through the Michigan Treasury Online (MTO) portal. The election is irrevocable for 3 tax years. [7] |
| File Michigan individual return (MI-1040) | April 15 (shareholders) | Each shareholder reports their pro rata share of Michigan income. [9] |
| Pay quarterly estimated tax | April 15, June 15, September 15, January 15 | Required for shareholders whose Michigan tax exceeds $500 (MI-1040ES). FTE-electing entities make quarterly FTE estimated payments. [7] [9] |
| File Annual Report (corporation) | May 15 each year | Filed with LARA on Form CSCL/CD-2700. $25 on-time fee. Late fees scale from $35 to $75 the further past May 15 it is filed. [5] |
| File Annual Statement (LLC) | February 15 each year | LLCs file an annual statement (Form CSCL/CD-2700) with LARA. $25 fee. PLLCs pay $75 plus a $50 late fee after February 15. [5] |
| Set up payroll | Before paying yourself a salary | Register with the Michigan Unemployment Insurance Agency (UIA) and with Michigan Treasury for withholding through MTO before issuing W-2 wages. [11] [1] |
An S Corp is a tax classification, not a standalone entity. You must have an active Michigan corporation or LLC on file with LARA 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 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]
Submit by mail or fax. No filing fee.
Michigan businesses mail Form 2553 to: Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999. Fax: 855-887-7734. [8]
Michigan follows the federal S Corp classification automatically under the Michigan Income Tax Act (MCL 206.601 et seq.). Once the IRS accepts your Form 2553, your business is treated as a flow-through entity for Michigan income tax purposes. No separate state S election form is required with the Michigan Department of Treasury. [14]
If you want to claim a federal SALT deduction at the entity level, your Michigan S Corp can elect into the Flow-Through Entity Tax through the Michigan Treasury Online (MTO) portal. The election must be made on or before the 15th day of the 3rd month of the tax year and is irrevocable for 3 tax years. The FTE tax rate is 4.25% for tax years beginning in 2024 and later. [7] [12]
As an S Corp shareholder-employee, you must pay yourself a reasonable salary through W-2 payroll. The IRS scrutinizes S Corps that pay unreasonably low salaries to avoid payroll taxes.
If you do not already have an EIN, apply at no charge on the IRS website (irs.gov). You will need the EIN before filing Form 2553 and before opening a business bank account.
Michigan profit corporations file an annual report (Form CSCL/CD-2700) with LARA by May 15 each year. The on-time fee is $25, with late fees that climb to a maximum of $75 if filed September 1 or later. Michigan LLCs file an annual statement (also Form CSCL/CD-2700) by February 15 for $25. [5]
File IRS Form 1120-S and distribute Schedule K-1s to all shareholders by March 15 (calendar-year filers). Michigan S Corps that have not elected the FTE tax do not file a state corporate income tax return because they are not subject to the CIT. S Corps that have elected the FTE tax file Form 5772 by the last day of the 3rd month after year end. [1] [7]
Shareholders pay quarterly Michigan estimated tax (Form MI-1040ES) if their personal Michigan liability exceeds $500. FTE-electing entities make quarterly FTE estimated payments through MTO. [7] [9]
Failure to file the LARA annual report or annual statement on time incurs escalating late fees and ultimately may lead to administrative dissolution. Federal late filing of Form 1120-S triggers a per-shareholder penalty per month, currently $245 per shareholder per month for up to 12 months. [5] [13]
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).
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, and confirm that the entity has consistently filed as if the S election were in effect. [3]
Because Michigan follows the federal S election automatically, no separate state late election process is required. [14]
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. [3]
Because Michigan follows the federal classification, a federal revocation automatically terminates the Michigan S Corp status. The entity then becomes subject to the 6.0% CIT if it is taxed as a C Corporation federally. [1] [14]
Michigan imposes a 6.0% Corporate Income Tax under MCL 206.623 on C Corporations and entities taxed as corporations federally. Michigan S Corps are flow-through entities and are not subject to the CIT. C Corps with allocated or apportioned gross receipts under $350,000 or annual liability of $100 or less are not required to file or pay the CIT. [1] [6]
| Entity | Michigan Corporate Income Tax (6.0%) |
|---|---|
| C Corporation | Subject to 6.0% CIT [1] |
| Entity taxed as a corporation federally | Subject to 6.0% CIT [1] |
| S Corporation | Not subject to CIT (flow-through) [1] |
| Partnership / LLC (default) | Not subject to CIT (flow-through) [1] |
Michigan offers an elective Flow-Through Entity Tax under MCL 206.801 et seq. (Public Act 135 of 2021). The FTE tax rate equals the Michigan individual income tax rate, which is 4.25% for tax years beginning in 2024 and later. Shareholders claim a refundable credit on their Michigan individual return for FTE tax paid on their behalf. The election is made through MTO and is irrevocable for 3 tax years. [7] [12] [15]
Michigan imposes a flat individual income tax under MCL 206.51. The rate is 4.25% for tax years 2024 and later. The rate briefly dropped to 4.05% for tax year 2023 under the statute’s automatic rollback trigger, but returned to 4.25% from 2024 forward. Nonresident shareholders pay Michigan tax only on income sourced to Michigan. [9] [12]
Michigan state sales tax is 6% on most tangible personal property and certain services. Michigan does not allow city or county sales taxes. Use tax is 6% on items brought into Michigan from out-of-state retailers. Register through Michigan Treasury Online. [10]
| Item | Cost |
|---|---|
| Articles of Incorporation (Form CSCL/CD-500) | $10 non-refundable fee plus $50 organization fee (60,000 authorized shares or fewer) [5] |
| Articles of Organization, LLC (Form CSCL/CD-700) | $50 [5] |
| IRS Form 2553 filing | No fee [3] |
| Federal EIN (Form SS-4) | No fee |
| Annual Report (corporation, Form CSCL/CD-2700) | $25 on-time, up to $75 late [5] |
| Annual Statement (LLC, Form CSCL/CD-2700) | $25 ($75 for PLLC) [5] |
| Resident Agent service (typical commercial) | $100 to $300 per year |
| Expedited filing (24-hour formation) | $50 add-on per LARA fee schedule [5] |
| Feature | S Corporation | LLC |
|---|---|---|
| Formation Document | Articles of Incorporation ($60 minimum) | Articles of Organization ($50) |
| Federal Tax Treatment | Pass-through (Form 1120-S) | Pass-through by default (Form 1065 or Schedule C) |
| Michigan Tax Treatment | Flow-through; auto-recognized | Default: same as federal |
| Annual Filing | Annual report by May 15 ($25) | Annual statement by February 15 ($25) |
| Self-Employment Tax | 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 |
| Corporate Income Tax | Not subject (flow-through) | Not subject by default |
| FTE Tax Election | Yes (4.25%) | Yes, if taxed as an S Corp or a 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 and the additional compliance burden. Use this guide:
| Net Business Income | Recommendation |
|---|---|
| Under $40,000 | An S Corp likely does not make sense. |
| $40,000 to $60,000 | Borderline. Run the numbers with a CPA. |
| $60,000 to $100,000 | Usually saves $2,000 to $5,000 per year. |
| $100,000 to $200,000 | Strong candidate. Savings often $5,000 to $10,000+ per year. |
| Over $200,000 | Almost always advantageous. |
Keep in mind that Michigan’s $25 annual report fee, payroll administration, and ongoing CPA fees together add roughly $500 to $2,000 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. Distribute K-1s to shareholders. |
| Form 5772 (Michigan FTE return) | Required only for entities that elected the FTE tax. Due on the last day of the 3rd month after year-end (March 31 for calendar filers). [7] |
| Annual Report (corporation) | Filed with LARA on Form CSCL/CD-2700 by May 15. $25 on-time fee. [5] |
| Annual Statement (LLC) | Filed with LARA on Form CSCL/CD-2700 by February 15. $25 fee. [5] |
| Form 941 (Federal Payroll Tax) | Filed quarterly. |
| Form 5080 (Michigan withholding) | Michigan sales, use, and withholding deposits are filed monthly or quarterly through MTO. [1] |
| UIA Form 1028 (Quarterly Wage/Tax Report) | Filed quarterly with the Michigan Unemployment Insurance Agency. [11] |
| W-2s and 1099s | Distributed by January 31. Filed with IRS, SSA, and Michigan Treasury. |
| Estimated Tax Payments | Quarterly federal and Michigan estimated tax if the expected liability exceeds $500. [9] |
| FTE Tax Election | Made through MTO by the 15th day of the 3rd month of the tax year; irrevocable for 3 tax years. [7] |
| Resident Agent Maintenance | Keep the agent and registered office address current with LARA. [4] |
[1] Michigan Department of Treasury. Corporate Income Tax (CIT) Overview. Accessed May 19, 2026.
[2] Michigan Department of Licensing and Regulatory Affairs (LARA). Corporations, Securities & Commercial Licensing Bureau. Accessed May 19, 2026.
[3] IRS. Instructions for Form 2553. Accessed May 19, 2026.
[4] Michigan Compiled Laws. MCL 450.1241 (Resident Agent and Registered Office). Accessed May 19, 2026.
[5] Michigan LARA. Corporations Division Filing Fees Schedule. Accessed May 19, 2026.
[6] Michigan Compiled Laws. MCL 206.623 (Corporate Income Tax Imposition and Rate). Accessed May 19, 2026.
[7] Michigan Department of Treasury. Flow-Through Entity Tax. Accessed May 19, 2026.
[8] IRS. Where to File Your Taxes (for Form 2553). Accessed May 19, 2026.
[9] Michigan Compiled Laws. MCL 206.51 (Individual Income Tax Rate). Accessed May 19, 2026.
[10] Michigan Department of Treasury. Sales and Use Tax. Accessed May 19, 2026.
[11] Michigan Unemployment Insurance Agency. Employer Information. Accessed May 19, 2026.
[12] Michigan Department of Treasury. Notice: 4.25% Tax Rate for Flow-Through Entity Tax Years Beginning in 2024. Accessed May 19, 2026.
[13] IRS. S Corporations. Accessed May 19, 2026.
[14] Michigan Compiled Laws. MCL 206.601 (Michigan Income Tax Act, Corporate Income Tax Part Definitions). Accessed May 19, 2026.
[15] Michigan Compiled Laws. MCL 206.801 (Flow-Through Entity Tax). Accessed May 19, 2026.
