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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’ personal tax returns. This eliminates the double taxation that C Corporations face, where profits are taxed at both the corporate and individual levels.
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 individual tax returns.
In New York, S Corps pay a fixed dollar minimum franchise tax at the entity level based on New York receipts, ranging from $25 to $4,500. [4] Shareholders then pay New York personal income tax on their pro rata share of the S Corp pass-through items. The MTA surcharge does not apply to New York S Corporations. [2]
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 (15.3% combined). Distributions above your reasonable salary are not subject to these payroll taxes.
| 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 elections may qualify under IRS Rev. Proc. 2013-30. |
| File NY Form CT-6 | Before filing Form CT-3-S | Must receive approval from the NY Department of Taxation and Finance before filing the S Corp franchise tax return. |
| Form CT-3-S (NY S Corp Franchise Tax Return) | March 15 (calendar-year filers) | 15th day of the 3rd month after the close of the tax year. Six-month extension available via Form CT-5.4. |
| Federal Form 1120-S | March 15 (calendar-year filers) | 15th day of the 3rd month after the close of the tax year. |
| Biennial Statement | During the anniversary month of incorporation | Filed every two years with the NY Department of State. |
| Publication Requirement | Within 120 days of filing the Certificate of Incorporation | Two newspapers, six consecutive weeks. File Certificate of Publication afterward. |
| PTET Election (if opting in) | March 15 of the current tax year | Annual election made through the Business Online Services account. |
| PTET Estimated Payments | March 15, June 15, September 15, December 15 | Quarterly estimated payments are required if electing PTET. |
| Estimated Franchise Tax (CT-400) | Quarterly | Required if the corporation expects to owe more than $1,000 in franchise tax after credits. |
An S corp is a tax classification, not a standalone entity. You must have an active New York LLC or C Corporation registered with the state before you can file your IRS election.
If you want to form an LLC, check this guide.
If you want to start as a C Corp, check this guide.
Already have an existing LLC or a C Corp? 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 January 1 tax year, this means the deadline is March 15. [1]
Form 2553 collects the following information:
All shareholders must sign the consent portion of the form before it is submitted. An unsigned form will be rejected by the IRS.
You can submit Form 2553 by mail or fax. There is no filing fee.
Faxing is typically faster than mailing. Keep your fax confirmation receipt. The IRS will send a CP261 acceptance notice to confirm your S corporation election. If your election is not accepted, you will receive a letter explaining the issue. [8]
Unlike most states, New York does not automatically recognize your federal S Corp election. You must separately file Form CT-6, Election by a Federal S Corporation to be Treated As a New York S Corporation, with the New York Department of Taxation and Finance. [2]
To complete Form CT-6, provide your corporation’s name, address, EIN, the tax year you want the election to begin, and whether this is an initial or subsequent election. All shareholders must sign the form.
You must receive approval from the Department of Taxation and Finance before filing Form CT-3-S. Without Form CT-6 on file, New York will tax your business as a C Corporation, subjecting it to the full corporate franchise tax rates rather than the lower fixed dollar minimum.
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 in the same region would typically earn. There is no fixed formula, but the IRS flags S Corps where owner salaries appear unusually low relative to distributions.
Setting your salary too low risks the IRS reclassifying distributions as wages, which would make them subject to payroll taxes. Setting it too high means you are paying more in payroll taxes than necessary.
If you do not already have an EIN, you can apply for one 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.
Due to the complexity of the application paperwork, many business owners prefer to use a professional filing service to handle the process.
Note: After obtaining your EIN, open a dedicated business bank account to keep your personal and business finances separate. This is essential for maintaining your limited liability protection.
File a Biennial Statement with the Department of State every two years during the anniversary month of incorporation. The fee is $9. Failure to file may result in your corporation’s status showing as “Past Due,” which can prevent you from obtaining certificates of good standing. [14]
File IRS Form 1120-S and distribute Schedule K-1s to all shareholders by March 15 (calendar-year filers). File New York Form CT-3-S by March 15. Request a six-month extension via Form CT-5.4 if needed, but pay your estimated franchise tax by the original due date. [9]
If your S Corp expects to owe more than $1,000 in franchise tax after credits, file Form CT-400 and make quarterly payments. You may also need to pay estimated personal income tax on behalf of nonresident shareholders using Form IT-2658.
Late filing of the CT-3-S return incurs a 5% per month penalty on the tax due (up to 25%), plus a 0.5% per month late payment penalty on any unpaid tax, plus interest. Prolonged non-filing of the Biennial Statement can lead to administrative dissolution by the Department of State.
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 structured as an LLC) until the next eligible tax year begins.
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 show that the business has filed all tax returns consistent with S Corp status since the intended election date. [13]
On the state side, if you do not file Form CT-6 with the New York Department of Taxation and Finance, the state will treat your business as a C Corporation. This subjects it to the full corporate franchise tax under Article 9-A rather than the lower fixed dollar minimum that applies to New York S Corps. There is no separate late-relief procedure for Form CT-6, so timely filing is critical.
To terminate your New York S Corp election, file Form CT-6.1, Termination of Election to be Treated As a New York S Corporation, with the Department of Taxation and Finance. [2]
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. Once revoked, you generally cannot re-elect S Corp status for five years without IRS consent. Consult a tax professional before revoking to understand the full implications.
New York S Corps pay the fixed dollar minimum franchise tax under Article 9-A, based on New York receipts. The tax is reported and paid on Form CT-3-S. [4]
| New York Receipts | Fixed Dollar Minimum Tax |
|---|---|
| Not more than $100,000 | $25 |
| More than $100,000 but not over $250,000 | $50 |
| More than $250,000 but not over $500,000 | $175 |
| More than $500,000 but not over $1,000,000 | $300 |
| More than $1,000,000 but not over $5,000,000 | $1,000 |
| More than $5,000,000 but not over $25,000,000 | $3,000 |
| Over $25,000,000 | $4,500 |
Over 460,000 S corporations in New York are required to pay this entity-level franchise tax under Article 9-A. [11]
The Metropolitan Transportation Business Tax surcharge does not apply to New York S Corporations. This is a significant advantage over C Corporations operating in the MCTD (New York City, Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester counties). [2]
New York S Corps may annually elect to pay the PTET, an optional entity-level tax enacted in 2021 under Tax Law Article 24-A. PTET tax rates range from 6.85% on PTE taxable income under $2 million to 10.90% on income exceeding $25 million. The election must be made annually by March 15 through the entity’s Business Online Services account. [7]
New York City also offers a separate NYC PTET (Tax Law Article 24-B) for city-resident S Corporations. The NYC PTET rate is 3.876%. To elect the NYC PTET, the S Corp must also elect the NYS PTET, and all shareholders must be New York City residents. [10]
Shareholders pay New York personal income tax on their pro rata share of the S Corp pass-through items. Nonresident and part-year resident shareholders pay tax only on S Corp income derived from New York sources. New York’s personal income tax rates range from 4% to 10.90%, depending on income level and filing status.
| Feature | S Corporation | LLC |
|---|---|---|
| Formation Document | Certificate of Incorporation ($125) | Articles of Organization ($200) |
| Federal Tax Treatment | Pass-through (Form 1120-S) | Pass-through by default (Form 1065 or Schedule C) |
| Self-Employment Tax | Only on a W-2 salary | On all net earnings (15.3%) |
| NY Franchise Tax | Fixed dollar minimum ($25–$4,500) | Annual filing fee ($25–$4,500) based on gross income |
| NYC Business Tax | Exempt from Business Corporation Tax | May owe Unincorporated Business Tax (4%) |
| MTA Surcharge | Exempt | Not applicable |
| Ownership Limits | 100 shareholders max; U.S. only | No limits on the number or type of members |
| Stock/Membership | One class of stock only | Flexible membership interests |
| PTET Eligibility | Yes | Yes (if treated as a partnership or S Corp) |
| Publication Requirement | Yes (6 weeks, 2 newspapers) | Yes (6 weeks, 2 newspapers) |
| Ongoing Reporting | Biennial Statement ($9) | Biennial Statement ($9) |
| Management | Board of Directors and Officers | Member-managed or Manager-managed |
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 costs of maintaining the corporate structure and running payroll.
| Net Business Income | Recommendation |
|---|---|
| Under $40,000 | An S Corp likely does not make sense. Payroll and compliance costs may exceed savings. |
| $40,000 – $60,000 | Borderline. Run the numbers with a CPA. Savings may be modest. |
| $60,000 – $150,000 | An S Corp election is often beneficial. Tax savings can range from $2,000 to $10,000+ per year. |
| Over $150,000 | An S Corp election is typically recommended. Greater savings on distributions above a reasonable salary. |
Keep in mind that New York’s publication requirement adds $300 to $2,000 in upfront costs. S Corps also have ownership restrictions that may not suit every business model. Consult a CPA or tax attorney to evaluate your specific situation.
| Requirement | Details |
|---|---|
| Form 1120-S (Federal) | Due March 15. Reports S Corp income. Distribute K-1s to shareholders. |
| Form CT-3-S (New York) | Due March 15. Pays the fixed dollar minimum franchise tax. Extension via CT-5.4. |
| Form CT-34-SH | Attached to CT-3-S. Reports aggregate S Corp items for shareholders. |
| Biennial Statement | Every 2 years during anniversary month. $9 fee. |
| Payroll Tax Filings | Federal Form 941 quarterly, W-2 annually, and NY withholding returns. |
| Estimated Tax (CT-400) | Quarterly, if franchise tax is expected to exceed $1,000 after credits. |
| IT-2658 | Estimated tax on behalf of nonresident shareholders, if applicable. |
| PTET Return (if elected) | Due March 15. Filed via Business Online Services. |
| Sales Tax Returns | If applicable. Filed quarterly, monthly, or annually. |
[1] IRS. Instructions for Form 2553. Accessed May 6, 2026.
[2] New York Department of Taxation and Finance. Franchise Tax on S Corporations. Accessed May 6, 2026.
[3] New York Department of State. Form a Corporation or Business. Accessed May 6, 2026.
[4] New York State Senate. Tax Law § 210-Computation of Tax. Accessed May 6, 2026.
[5] New York City Department of Finance. Business Corporation Tax. Accessed May 6, 2026.
[6] New York Department of Taxation and Finance. Definitions for Article 9-A Corporations. Accessed May 6, 2026.
[7] New York Department of Taxation and Finance. Pass-Through Entity Tax (PTET). Accessed May 6, 2026.
[8] IRS. Where to File Your Taxes (Form 2553). Accessed May 6, 2026.
[9] New York Department of Taxation and Finance. 2025 Instructions for Form CT-3-S. Accessed May 6, 2026.
[10] New York Department of Taxation and Finance. New York City Pass-Through Entity Tax (NYC PTET). Accessed May 6, 2026.
[11] New York Department of Taxation and Finance. Corporate Taxes — Tax Facts. Accessed May 6, 2026.
[12] New York Department of State. Certificate of Incorporation Form. Accessed May 6, 2026.
[13] IRS. S Corporations. Accessed May 6, 2026.
[14] New York Department of State. Biennial Statements. Accessed May 6, 2026.
[15] New York Department of Labor. Employer Services. Accessed May 6, 2026.
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