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 Ohio, an S Corporation is a flow-through entity. Ohio has no state corporate income tax and no entity-level tax on S Corp net income. Shareholders pay Ohio individual income tax on their pass-through share. For tax year 2025, the top rate is 3.125%, and beginning January 1, 2026, Ohio moves to a flat 2.75% rate on Ohio taxable nonbusiness income above $26,050 (House Bill 96 of the 136th General Assembly). [6]
Ohio also offers an elective Pass-Through Entity (PTE) tax under House Bill 515 of 2022, reported on Form IT 4738. A qualifying S Corp may elect to pay state income tax at the entity level so shareholders can preserve the federal SALT deduction. The IT 4738 rate is 3% for tax year 2024 and 2025 returns and aligns with future statutory rates set by the Department of Taxation. [7] [9]
Separately, businesses owe the Ohio Commercial Activity Tax (CAT) if their Ohio taxable gross receipts exceed $6 million in a calendar year. The CAT rate is 0.26% on receipts above the threshold. The annual minimum tax was eliminated effective tax year 2024. [12]
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 1120-S (Federal) | March 15 (calendar-year filers) | Distribute Schedule K-1s to shareholders. [3] |
| File Ohio IT 1140 or IT 4708 (if applicable) | April 15 (calendar-year filers) | IT 1140 is the withholding return for nonresident investors; IT 4708 is the composite return filed by the PTE on behalf of qualifying nonresident investors. [15] [16] |
| Elect Ohio PTE tax (Form IT 4738) | On or before the unextended due date of the return | Election is made by timely filing Form IT 4738. The election is annual and irrevocable for the year. [7] |
| Pay quarterly estimated PTE tax | April 15, June 15, September 15, January 15 | Required if the expected Ohio PTE tax liability exceeds $500. [7] |
| File the Ohio CAT return | Quarterly (annual filing eliminated after TY 2023) | Beginning with tax year 2024, annual CAT filing is eliminated. Businesses above the $6 million threshold file quarterly with returns due the 10th day of the second month after each quarter ends. [12] |
| Set up payroll | Before paying yourself a salary | Register with the Ohio Department of Job and Family Services (ODJFS) through THE SOURCE for unemployment insurance, and with the Ohio Department of Taxation for state income tax withholding. [11] |
An S Corp is a tax classification, not a standalone entity. You must have an active Ohio corporation or LLC on file with the Ohio 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 Ohio 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 IRS filing fee.
If your principal business office is located in Ohio, mail Form 2553 to: Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999. [8]
Fax number for Ohio 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.
Ohio follows the federal S Corp classification automatically. Once your federal Form 2553 is accepted, Ohio treats your business as a pass-through entity for state tax purposes. There is no separate Ohio election form to submit, and Ohio does not impose a corporate income tax on S Corps. [1]
Retain a copy of your IRS CP261 acceptance letter with your corporate records. You will need it if you make a future PTE election on Form IT 4738 or if the Department of Taxation requests verification.
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 owners' 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.
Ohio is one of the few states that does not require corporations or LLCs to file an annual or biennial report with the Secretary of State. Once your entity is on file, no recurring filing is needed to keep it in good standing. (Professional nonprofit corporations have separate five-year statement of continued existence requirements.) [5]
File IRS Form 1120-S and distribute Schedule K-1s to all shareholders by March 15 (calendar-year filers). [3]
S Corps with nonresident investors generally file Form IT 1140 (withholding return) or Form IT 4708 (composite return) by April 15. S Corps that elect the entity-level PTE tax file Form IT 4738 by the same date. Shareholders report any remaining pass-through income on Form IT 1040. [15] [16] [7]
Businesses with Ohio taxable gross receipts of more than $6 million must register for and pay the CAT at 0.26% on receipts above the threshold. Beginning with tax year 2024, annual filing has been eliminated and all CAT filers report quarterly. The annual minimum tax has also been eliminated. [12]
Quarterly estimated PTE payments are required if the expected Ohio PTE tax liability exceeds $500. Shareholders may also owe Ohio individual estimated payments on pass-through income that is not covered by withholding or a composite return. [7]
Ohio imposes a failure-to-file penalty of the greater of $50 per month (max $500) or 5% of unpaid tax per month (max 50%), plus a failure-to-pay penalty of up to 15% of unpaid tax, plus interest at the rate set annually by the Tax Commissioner. [6]
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 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 Ohio follows the federal S election automatically, there is no separate state late-election process. Once the IRS grants late election relief, Ohio will treat the entity as a pass-through S Corporation for the same tax year. [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 on 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 Ohio follows the federal classification, a federal revocation automatically terminates the Ohio S Corp treatment. Once revoked, you generally cannot re-elect S Corp status for five years without IRS consent. [1]
Ohio has no corporate income tax. The former Corporate Franchise Tax was fully phased out by 2014. As a result, S Corps and C Corps alike pay no Ohio entity-level income tax. The only general state-level business tax in Ohio is the Commercial Activity Tax (CAT) on gross receipts. [12]
| Entity Type | Ohio Entity-Level Tax |
|---|---|
| S Corporation | No income tax. CAT at 0.26% on Ohio gross receipts above $6M. [12] |
| Partnership / LLC (partnership) | No income tax. CAT applies on the same basis. [12] |
| C Corporation | No state income tax. CAT applies on the same basis. Federal 21% rate still applies. [12] |
| Sole prop / disregarded LLC | No entity-level tax. Owner pays Ohio individual tax on net income. [6] |
Under Ohio Revised Code Chapter 5751, the CAT is a privilege tax measured by Ohio taxable gross receipts. For tax year 2025 and forward, the exclusion threshold is $6 million in annual Ohio gross receipts. The rate is 0.26% on receipts above the threshold. The annual minimum tax has been eliminated. [12]
CAT filers report quarterly. The first $1 million of receipts is excluded from tax under the standard exclusion, and small businesses below the $6 million threshold are not required to file. New businesses should monitor receipts carefully because crossing the threshold mid-year triggers registration and quarterly filings. [12]
Ohio's elective PTE tax, enacted by House Bill 515 of 2022, allows S Corps to pay state income tax at the entity level on Form IT 4738. Doing so preserves the federal SALT deduction for shareholders by removing the tax from the personal return. The IT 4738 tax rate is 3% for tax year 2025 returns, with the rate updated annually by the Ohio Department of Taxation. [7] [9]
S Corps with nonresident investors that do not elect the entity-level PTE tax typically file Form IT 1140 (withholding return) or Form IT 4708 (composite return) instead, withholding or paying Ohio tax on the nonresident share at the top individual rate. [15] [16]
Resident shareholders report their pro rata share of S Corp income on Form IT 1040. For tax year 2025, Ohio applies graduated rates topping out at 3.125%. Beginning January 1, 2026, Ohio applies a flat 2.75% rate on Ohio taxable nonbusiness income above $26,050 (House Bill 96 of the 136th General Assembly). Income at or below $26,050 remains taxed at 0%. [6]
The Ohio state sales tax is 5.75% on most retail sales. Counties and transit authorities add up to an additional 2.25%, producing combined rates up to 8% in some jurisdictions. Register through the Ohio Business Gateway. [10]
| Item | Cost |
|---|---|
| Initial Articles of Incorporation (Form 532A) | $99 [2] |
| Articles of Organization, LLC (Form 610, replaces 533A) | $99 [2] |
| IRS Form 2553 filing | No fee [3] |
| Federal EIN (Form SS-4) | No fee |
| Annual Report | Not required for Ohio for-profit corporations or LLCs [5] |
| Statutory Agent service (typical commercial) | $100 to $300 per year |
| Optional: expedited filing service (Level 1 to Level 3) | $100 to $300 extra per filing [2] |
| Feature | S Corporation | LLC |
|---|---|---|
| Formation Document | Articles of Incorporation, Form 532A ($99) | Articles of Organization, Form 610 ($99) |
| Federal Tax Treatment | Pass-through (Form 1120-S) | Pass-through by default (Form 1065 or Schedule C) |
| Ohio Income Tax Treatment | No entity-level income tax; pass-through to IT 1040 | No entity-level income tax; pass-through to IT 1040 or Schedule of Business Income |
| Annual Report | Not required in Ohio | Not required in Ohio |
| 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 |
| PTE Election Available | Yes (Form IT 4738) | Yes, if taxed as an S Corp or a partnership |
| CAT Exposure | Same: 0.26% on gross receipts above $6M | Same: 0.26% on gross receipts above $6M |
| 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 Ohio's payroll setup costs, federal Form 1120-S preparation, and ongoing CPA fees together add roughly $800 to $2,500 in annual costs. However, the lack of an Ohio annual report fee and no state corporate income tax keep Ohio S Corps among the lowest-cost compliance environments in the country.
| Requirement | Details |
|---|---|
| Form 1120-S (Federal) | Due March 15. Reports S Corp income. Distribute K-1s to shareholders. |
| Ohio IT 1140 or IT 4708 (if applicable) | Due April 15. Filed by S Corps with nonresident investors. IT 1140 is the withholding return; IT 4708 is the composite return. [15] [16] |
| Ohio IT 4738 (if PTE elected) | Due April 15. Elective entity-level PTE tax return at the rate set by ODT. [7] |
| Ohio CAT Quarterly Return | Filed quarterly with the Department of Taxation only if Ohio gross receipts exceed $6 million per year. Annual filing eliminated as of tax year 2024. [12] |
| Form 941 (Federal Payroll Tax) | Filed quarterly. Reports federal income tax, Social Security, and Medicare withheld. |
| Ohio IT 501 / IT 941 | Ohio employer withholding payments (IT 501) and annual reconciliation (IT 941) are filed with the Ohio Department of Taxation. [6] |
| ODJFS Quarterly UI Report (JFS-20125) | Quarterly unemployment insurance contribution and wage report filed through THE SOURCE. [11] |
| W-2s and 1099s | Distributed by January 31. Filed with the IRS, the Social Security Administration, and the Ohio Department of Taxation. |
| Estimated Tax Payments | Quarterly federal estimated tax. Quarterly Ohio PTE estimated payments are required if liability exceeds $500. |
| Statutory Agent Maintenance | Keep agent and Ohio street address current with the Ohio Secretary of State under ORC 1701.07 (corporations) and 1706.09 (LLCs). [4] [14] |
| Annual Report | Not required in Ohio for for-profit corporations or LLCs. [5] |
[1] Ohio Department of Taxation. Pass-Through Entity and Fiduciary Income Tax. Accessed May 19, 2026.
[2] Ohio Secretary of State. Business Filing Forms and Fee Schedule. Accessed May 19, 2026.
[3] IRS. Instructions for Form 2553. Accessed May 19, 2026.
[4] Ohio Revised Code. Section 1701.07: Agent for Service of Process (Corporations). Accessed May 19, 2026.
[5] Ohio Secretary of State. Keeping Your Business Up-To-Date. Accessed May 19, 2026.
[6] Ohio Department of Taxation. Annual Tax Rates (Individual Income Tax). Accessed May 19, 2026.
[7] Ohio Department of Taxation. IT 4738 Electing Pass-Through Entity Income Tax Return. Accessed May 19, 2026.
[8] IRS. Where to File Your Taxes (for Form 2553). Accessed May 19, 2026.
[9] Ohio Department of Taxation. Pass-Through Entity and Fiduciary Income Tax Rates. Accessed May 19, 2026.
[10] Ohio Department of Taxation. Sales and Use Tax. Accessed May 19, 2026.
[11] Ohio Department of Job and Family Services. Employer Resources (THE SOURCE). Accessed May 19, 2026.
[12] Ohio Department of Taxation. Commercial Activity Tax (CAT). Accessed May 19, 2026.
[13] IRS. S Corporations. Accessed May 19, 2026.
[14] Ohio Revised Code. Section 1706.09: Legal Agents of Limited Liability Companies. Accessed May 19, 2026.
[15] Ohio Department of Taxation. IT 4708 Pass-Through Entity Composite Income Tax Return. Accessed May 19, 2026.
[16] Ohio Department of Taxation. IT 1140 Pass-Through Entity and Trust Withholding Tax Return. Accessed May 19, 2026.
