Excellent
7,486 reviews
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 New Mexico, an S Corporation is a pass-through entity and files Form S-Corp, the New Mexico Sub-Chapter S Corporate Income and Franchise Tax Return. The S Corp deducts and withholds New Mexico tax equal to 4.9% of each nonresident owner share of net income and reports it on the same return. Shareholders then pay New Mexico personal income tax on their pass-through share at graduated rates up to 5.9%.[1] [9]
New Mexico also imposes a $50 corporate franchise tax on every corporation, including S Corps, that exercises its corporate franchise in the state. The franchise tax is due with the Form S-Corp return each year, even for a short-year return and even if the corporation owes no income tax.[5]
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 S-Corp (New Mexico) | March 15 (calendar-year filers) | Due on or before the due date of the federal return. Reports income, the $50 franchise tax, and nonresident withholding.[1] [5] |
| File Form 1120-S (Federal) | March 15 (calendar-year filers) | Distribute Schedule K-1s to shareholders.[3] |
| Pay the $50 corporate franchise tax | With the Form S-Corp return | Due every year or partial year the corporation exercises its corporate franchise in New Mexico, even with no income tax owed.[5] |
| New Mexico extension (Form CIT-EXT) | On or before March 15 | New Mexico honors the IRS extension. Extension payments may be made by the 15th day of the 3rd month after year-end.[5] |
| File the Corporate Report (Secretary of State) | Biennially, 15th day of the 4th month after fiscal year-end | Filed online with the New Mexico Secretary of State. LLCs do not file reports.[7] |
| Pay quarterly estimated tax | 15th day of the 4th, 6th, 9th, and 12th months | Required when New Mexico tax liability is expected to exceed the estimated payment threshold.[5] |
| Set up payroll | Before paying yourself a salary | Register with the New Mexico Department of Workforce Solutions for unemployment insurance and with the Taxation and Revenue Department for wage withholding.[12] |
An S Corp is a tax classification, not a standalone entity. You must have an active New Mexico 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 New Mexico, mail Form 2553 to: Department of the Treasury, Internal Revenue Service, Ogden, UT 84201.[6]
Fax number for New Mexico businesses: 855-214-7520.[6]
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.
New Mexico follows the federal S Corp classification automatically. Once your federal Form 2553 is accepted, New Mexico treats your business as an S Corp when you file Form S-Corp, the Sub-Chapter S Corporate Income and Franchise Tax Return. There is no separate New Mexico election form to submit.[1]
After your federal acceptance, keep a copy of your IRS CP261 acceptance letter with your records to support your first New Mexico Form S-Corp filing.
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 for-profit New Mexico corporation files a Corporate Report with the Secretary of State every two years. The report is filed online, generally by the 15th day of the fourth month following the close of the corporation fiscal year. New Mexico LLCs do not file annual or biennial reports, so a corporation that elects S Corp status keeps this one recurring filing.[7]
File IRS Form 1120-S and distribute Schedule K-1s to all shareholders by March 15 (calendar-year filers). File New Mexico Form S-Corp, the Sub-Chapter S Corporate Income and Franchise Tax Return, on or before the due date of the federal return. The $50 franchise tax is paid with that return.[1] [5]
New Mexico honors the federal extension of time to file. To prevent interest from accruing, corporations may make extension payments on Form CIT-EXT by the 15th day of the third month following the close of the tax year. An extension is for filing only, not for payment.[5]
New Mexico corporations must pay quarterly estimated tax in equal installments on the 15th day of the fourth, sixth, ninth, and twelfth months of the tax year when the expected liability meets the state threshold.[5]
Interest accrues on unpaid New Mexico corporate income or franchise tax at the quarterly rate set under the Internal Revenue Code, calculated daily, plus a penalty for late filing or late payment. Failing to file the biennial Corporate Report with the Secretary of State can lead to a late fee and, eventually, administrative dissolution of the corporation.[5] [7]
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 New Mexico follows the federal S election automatically, there is no separate state late-election process. Once the IRS grants late election relief, New Mexico treats the entity as an S Corporation for the same tax year and it files Form S-Corp accordingly.[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 New Mexico follows the federal classification, a federal revocation automatically terminates the New Mexico S Corp status. The entity then files Form CIT-1 as a C Corp 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] [2]
New Mexico imposes a $50 corporate franchise tax on every domestic and foreign corporation, including S Corps, that engages in business in the state or exercises its corporate franchise there. The franchise tax is due with the Form S-Corp return for each year or partial year, even when the corporation owes no income tax.[5]
| Type | Amount |
|---|---|
| Corporate franchise tax (per year) | $50 flat[5] |
| Applies to S Corps | Yes, every year or partial year[5] |
| Paid with | Form S-Corp return[1] |
A New Mexico S Corp is a pass-through entity. When it files Form S-Corp, it must deduct and withhold New Mexico tax equal to 4.9% of each nonresident owner share of net income and remit it with the return.[1]
New Mexico HB 102, signed in 2022 and effective for tax years beginning on or after January 1, 2022, created an annual elective entity-level tax for pass-through entities. An S Corp may elect to pay New Mexico tax at the entity level by completing the entity-level tax computation on its Form S-Corp return. The election is binding on all owners and is made annually. The PTE tax rate is the top individual income tax rate of 5.9%, which preserves the federal SALT deduction at the entity level.[8] [1]
| Item | Detail |
|---|---|
| Authorizing law | HB 102 of 2022[8] |
| Effective | Tax years beginning on or after January 1, 2022[8] |
| How to elect | Complete the entity-level tax section on Form S-Corp[1] |
| PTE tax rate | 5.9% (top individual rate)[8] |
Shareholders pay New Mexico personal income tax on their pro rata share of S Corp pass-through items on Form PIT-1. New Mexico uses graduated rates across five brackets, with a top rate of 5.9%. Nonresident shareholders are taxed only on income derived from New Mexico sources, and the 4.9% withholding remitted on Form S-Corp is credited against their liability.[9] [1]
New Mexico does not have a traditional sales tax. Instead it imposes the Gross Receipts Tax (GRT), which is levied on the seller for the privilege of doing business in the state. The statewide GRT rate is 4.875%, and counties and municipalities add local increments, so the total rate varies by location. Businesses commonly pass the GRT on to customers, and when they do it must be separately stated on the invoice.[10] [11]
| Item | Cost |
|---|---|
| Articles of Incorporation (up to 100,000 authorized shares) | $100 minimum, up to $1,000 maximum[7] |
| Articles of Organization, LLC | $50[7] |
| Initial Corporate Report | $25[7] |
| IRS Form 2553 filing | No fee[3] |
| Federal EIN (Form SS-4) | No fee |
| Corporate franchise tax | $50 per year[5] |
| Biennial Corporate Report | $25 every two years[7] |
| Registered Agent service (typical commercial) | $100 to $300 per year |
| Feature | S Corporation | LLC |
|---|---|---|
| Formation Document | Articles of Incorporation ($100 minimum) | Articles of Organization ($50) |
| Federal Tax Treatment | Pass-through (Form 1120-S) | Pass-through by default (Form 1065 or Schedule C) |
| New Mexico Tax Return | Form S-Corp | Form PTE (if partnership) or owner return |
| Corporate Franchise Tax | $50 per year | Not subject to the $50 franchise tax |
| State Report | Biennial Corporate Report ($25) | No annual or biennial report |
| 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 (HB 102 of 2022) | 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 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 the $50 New Mexico franchise tax, the $25 biennial Corporate 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 S-Corp (New Mexico) | Due on or before the federal return due date (March 15 for calendar-year filers). Sub-Chapter S Corporate Income and Franchise Tax Return.[1] |
| Corporate franchise tax | $50 paid with each Form S-Corp return.[5] |
| Biennial Corporate Report | Filed online with the Secretary of State every two years. $25 fee.[7] |
| Form 941 (Federal Payroll Tax) | Filed quarterly. Reports federal income tax, Social Security, and Medicare withheld. |
| New Mexico wage withholding | Withholding tax reported through the Taxpayer Access Point (TAP). |
| New Mexico unemployment insurance | Quarterly UI wage and contribution reports filed with the Department of Workforce Solutions.[12] |
| Gross Receipts Tax returns | Filed periodically if the business has taxable gross receipts in New Mexico.[10] |
| W-2s and 1099s | Distributed by January 31. Filed with the IRS, Social Security Administration, and New Mexico. |
| Registered Agent Maintenance | Keep your New Mexico registered office and registered agent current with the Secretary of State. |
[1] New Mexico Taxation and Revenue Department. Pass-Through Entity (Corporate Income and Franchise Tax Overview). Accessed May 20, 2026.
[2] New Mexico Taxation and Revenue Department. Corporate Income and Franchise Tax Overview. Accessed May 20, 2026.
[3] IRS. Instructions for Form 2553. Accessed May 20, 2026.
[4] New Mexico Taxation and Revenue Department. Corporate Income and Franchise Tax Filing Requirements. Accessed May 20, 2026.
[5] New Mexico Taxation and Revenue Department. FYI-350: Corporate Income Tax and Corporate Franchise Tax. Accessed May 20, 2026.
[6] IRS. Where to File Your Taxes (for Form 2553). Accessed May 20, 2026.
[7] New Mexico Secretary of State. Business Services. Accessed May 20, 2026.
[8] New Mexico Legislature. House Bill 102 (2022 Regular Session), Pass-Through Entity Tax. Accessed May 20, 2026.
[9] New Mexico Taxation and Revenue Department. Personal Income Tax Rates. Accessed May 20, 2026.
[10] New Mexico Taxation and Revenue Department. Gross Receipts Tax Overview. Accessed May 20, 2026.
[11] New Mexico Taxation and Revenue Department. Gross Receipts Tax Rates. Accessed May 20, 2026.
[12] New Mexico Department of Workforce Solutions. Unemployment Insurance Tax Information. Accessed May 20, 2026.
[13] IRS. S Corporations. Accessed May 20, 2026.
