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Start your S Corp at $0 + state filing fees
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 North Carolina, an S Corporation files Form CD-401S, S-Corporation Tax Return, by April 15. The S Corp pays the North Carolina franchise tax at $200 on the first $1,000,000 of tax base plus $1.50 per $1,000 above that, with a $200 minimum. Shareholders pay North Carolina personal income tax on their pro rata share at the 3.99% flat rate for 2026. [1] [6] [9]
North Carolina also offers a Taxed Pass-Through Entity election under N.C.G.S. § 105-154.1. A qualifying S Corp may elect to pay state income tax at the entity level at the top individual rate (3.99% for 2026), preserving the federal SALT deduction. [7]
For business owners earning $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 Form CD-401S (North Carolina) | April 15 (calendar-year filers) | 15th day of the 4th month after the close of the tax year. [1] |
| File Form 1120-S (Federal) | March 15 (calendar-year filers) | Distribute Schedule K-1s to shareholders. [3] |
| Elect Taxed PTE | On a timely-filed Form CD-401S | Annual election made by checking the Taxed S Corporation box on the return. The election is irrevocable for the tax year once made. [7] |
| File CD-419 (extension) | On or before April 15 | Grants a 6-month extension to file Form CD-401S. Payment of any balance due is still required by April 15. [1] |
| Pay quarterly estimated tax | April 15, June 15, September 15, December 15 | Required if the expected North Carolina tax liability exceeds $500. [1] |
| File Annual Report (corporation) | 15th day of the 4th month after the fiscal year end | Filed with the NC Secretary of State. Fee: $25 paper / $21 online. [5] |
| File Annual Report (LLC) | April 15 | LLCs file annually with the NC Secretary of State. Fee: $200 paper / $203 online. [5] |
| Set up payroll | Before paying yourself a salary | Register with the NC Division of Employment Security (DES) for unemployment insurance and with NCDOR 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 North Carolina 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 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.
Mail to: Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999. Fax: 855-887-7734. [8]
North Carolina follows the federal S Corp classification automatically under N.C.G.S. § 105-131.1A. Once the IRS accepts your Form 2553, file Form CD-401S annually. No separate state election form is required. [14]
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).
North Carolina corporations file an annual report with the Secretary of State by the 15th day of the 4th month after the fiscal year end (April 15 for calendar-year filers). The fee is $25 paper or $21 online. North Carolina LLCs file separately by April 15 at $200 paper or $203 online. [5]
File IRS Form 1120-S and distribute Schedule K-1s to all shareholders by March 15 (calendar-year filers). File North Carolina Form CD-401S by April 15. [1]
File Form CD-419, Application for Extension for Franchise and Corporate Income Tax, on or before April 15. A 6-month extension is granted. Payment of any balance due is still required by the original due date. [1]
Pay quarterly estimated tax if the expected North Carolina liability exceeds $500. Shareholders separately pay the quarterly NC-40 estimated tax if their personal tax exceeds $1,000. [1]
Late filing of Form CD-401S incurs a 5% per month penalty (maximum 25%), plus interest at the rate set annually by NCDOR. Failure to file the annual report may lead to administrative dissolution. [1] [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).
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 North Carolina 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 North Carolina follows the federal classification, a federal revocation automatically terminates the North Carolina S Corp status. The entity then files Form CD-405 as a C Corp. [14]
North Carolina S Corps pays a franchise tax of $200 on the first $1,000,000 of NC apportioned tax base, plus $1.50 per $1,000 above that. The minimum franchise tax is $200. This formula is reported on Form CD-401S. [6]
| NC Apportioned Tax Base | Franchise Tax |
|---|---|
| Up to $1,000,000 | $200 (minimum) [6] |
| Over $1,000,000 | $200 plus $1.50 per $1,000 of excess |
| Minimum franchise tax | $200 |
North Carolina corporate income tax applies to C Corps only. Per S.L. 2021-180 and S.L. 2023-134, the rate is phasing down: 2.50% for 2019-2024, 2.25% for 2025, and 2.00% for 2026. Further reductions to 1.00% (2028) and 0.00% (2029) are conditional on General Fund revenue triggers. [6]
Under N.C.G.S. § 105-154.1, North Carolina allows S Corps and partnerships to elect entity-level taxation. The Taxed PTE pays state income tax at the top individual rate (3.99% for 2026). Shareholders then claim a credit on their NC individual returns. The election is made annually by checking the Taxed S Corporation box on Form CD-401S and is irrevocable for the tax year. [7] [9]
North Carolina imposes a flat individual income tax. The rate is 4.25% for 2025 and 3.99% for tax years 2026 and later. Nonresident shareholders pay tax only on income derived from North Carolina sources. [9]
North Carolina state sales tax is 4.75% on most tangible personal property and certain services. Counties add 2.00% to 2.75% local sales tax. Register through NCDOR business registration. [10]
| Item | Cost |
|---|---|
| Articles of Incorporation (Form B-01) | $125 [2] |
| Articles of Organization, LLC (Form L-01) | $125 [2] |
| IRS Form 2553 filing | No fee [3] |
| Federal EIN (Form SS-4) | No fee |
| Annual Report (corporation) | $25 paper / $21 online [5] |
| Annual Report (LLC) | $200 paper / $203 online [5] |
| Minimum Franchise Tax | $200 per year [6] |
| Registered Agent service (typical commercial) | $100 to $300 per year |
| Feature | S Corporation | LLC |
|---|---|---|
| Formation Document | Articles of Incorporation ($125) | Articles of Organization ($125) |
| Federal Tax Treatment | Pass-through (Form 1120-S) | Pass-through by default (Form 1065 or Schedule C) |
| North Carolina Tax Treatment | CD-401S; auto-recognized | Default: same as federal |
| Annual Report Fee | $21 to $25 | $200 to $203 |
| 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 |
| Franchise Tax | $200 minimum + $1.50/$1,000 over $1M | Generally, none for LLCs |
| Taxed PTE Election | Yes (3.99% in 2026) | 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 North Carolina’s $200 minimum franchise tax, annual report fee, and ongoing CPA fees together add roughly $700 to $2,200 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 CD-401S (North Carolina) | Due April 15. Pays franchise tax and optional Taxed PTE. [1] |
| Annual Report (corporation) | Filed with NC SOS by April 15 for calendar-year filers. $25 paper / $21 online. [5] |
| Form 941 (Federal Payroll Tax) | Filed quarterly. |
| Form NC-5 / NC-3 | NC withholding deposits and annual reconciliation filed with NCDOR. [12] |
| NCUI 101 (DES quarterly UI report) | Quarterly UI contribution report filed through NCSUITS. [11] |
| W-2s and 1099s | Distributed by January 31. Filed with IRS, SSA, and NCDOR. |
| Estimated Tax Payments | Quarterly federal and NC estimated tax if expected liability exceeds $500. |
| Taxed PTE Election | Made annually on Form CD-401S; irrevocable for the tax year. [7] |
| Registered Agent Maintenance | Keep agent and physical North Carolina address current with the Secretary of State. |
[1] North Carolina Department of Revenue. 2025 CD-401S S-Corporation Tax Return Instructions. Accessed May 18, 2026.
[2] North Carolina Secretary of State. Business Registration Forms. Accessed May 18, 2026.
[3] IRS. Instructions for Form 2553. Accessed May 18, 2026.
[4] North Carolina General Assembly. N.C.G.S. § 55D-30 (Registered Agent). Accessed May 18, 2026.
[5] North Carolina Secretary of State. Annual Report Due Dates and Fees. Accessed May 18, 2026.
[6] NCDOR. Corporate Income and Franchise Tax Rates. Accessed May 18, 2026.
[7] NCDOR. Taxed Pass-Through Entities Information. Accessed May 18, 2026.
[8] IRS. Where to File Your Taxes (for Form 2553). Accessed May 18, 2026.
[9] NCDOR. Individual Income Tax Rate Schedules. Accessed May 18, 2026.
[10] NCDOR. Current Sales and Use Tax Rates. Accessed May 18, 2026.
[11] North Carolina Division of Employment Security. Employer Information (NCSUITS). Accessed May 18, 2026.
[12] NCDOR. Business Registration (Form NC-BR). Accessed May 18, 2026.
[13] IRS. S Corporations. Accessed May 18, 2026.
[14] North Carolina General Assembly. N.C.G.S. § 105-131.1A (Auto-Recognition of Federal S Election). Accessed May 18, 2026.
