How to Start an S Corp in Virginia

Virginia S Corp Requirements

• Business Entity: You must have an active Virginia corporation or LLC registered with the State Corporation Commission (SCC) before electing S Corp tax status. [2]
• Federal S Corp Election: File IRS Form 2553, Election by a Small Business Corporation, no later than 2 months and 15 days after the beginning of the tax year the election is to take effect. [3]
• Virginia Recognition: Under Va. Code § 58.1-441, Virginia automatically recognizes a federal S election. No separate state election form is required. [1]
• Shareholder Limits: No more than 100 shareholders. All shareholders must be U.S. citizens or residents, estates, certain trusts, or tax-exempt organizations. No corporate or partnership shareholders. [3]
• Stock Class: Only one class of stock is permitted. Voting rights may differ, but all shares must have identical distribution and liquidation rights. [3]
• Registered Agent: Under Va. Code § 13.1-634, every Virginia corporation must continuously maintain a registered office and registered agent in the state. The agent must be a Virginia resident officer, director, or member of the Virginia State Bar. [4]
• Annual Registration Fee: Virginia corporations pay an annual registration fee starting at $50 (for 5,000 or fewer authorized shares), due by the last day of the entity’s anniversary month each year. [5]

What Is an S Corporation?

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 Virginia, an S Corporation files Form 502, Pass-Through Entity Return of Income and Return of Nonresident Withholding Tax, by April 15. The S Corp generally does not pay Virginia income tax at the entity level. Shareholders pay Virginia personal income tax on their pro rata share at graduated rates up to 5.75% (for income over $17,000). [14] [9]

Virginia also offers an elective Pass-Through Entity Tax (PTET) on Form 502PTET, enacted by 2022 Acts cc. 689/690 and codified at Va. Code § 58.1-390.3. The PTET rate is a flat 5.75% on Virginia taxable income. The election is annual and preserves the federal SALT deduction for shareholders. [7]

For business owners earning $60,000 or more in net business income, the S Corp election can provide meaningful self-employment tax savings.

Key Deadlines for Virginia S Corps

Key Benefits of an S Corp vs. an LLC in Virginia

• Self-Employment Tax Savings: LLC members generally pay 15.3% self-employment tax on all net business income. S Corp shareholders pay payroll taxes only on their W-2 salaries.
• Same Pass-Through Filing: Both Virginia S Corps and partnership-taxed LLCs file Form 502 and benefit from pass-through taxation. [14]
• PTET Election Available: Both S Corps and partnership-taxed LLCs may elect the 5.75% Virginia PTET on Form 502PTET, providing a federal SALT cap workaround. [7]
• Credibility and Structure: The corporate form with officers, directors, bylaws, and shareholder meetings can enhance credibility with lenders, vendors, and investors compared with a member-managed LLC.
• Employee Benefits Deductions: S Corp shareholder-employees who own 2% or less can deduct health insurance premiums, retirement contributions, and other fringe benefits pre-tax.

Key Benefits of an S Corp vs. a C Corp in Virginia

• No Double Taxation: Virginia C Corps pay 6% corporate income tax under § 58.1-400 at the entity level, then shareholders pay individual income tax on dividends. S Corp income passes through to shareholders only once. [6]
• No Entity-Level Income Tax: Virginia S Corps generally do not pay state corporate income tax at the entity level (unless they elect the PTET on Form 502PTET). [14]
• Loss Pass-Through: S Corp losses pass through to shareholders’ personal returns and can offset other income, subject to basis, at-risk, and passive activity limitations.
• No Accumulated Earnings Tax: C Corps that retain earnings beyond reasonable business needs may face a 20% federal accumulated earnings tax. S Corps have no such risk.
• PTET Eligibility: Only S Corps and partnership-taxed LLCs can elect the Virginia PTET. C Corps cannot use this to work around the federal $10,000 SALT deduction cap. [7]

How to Start an S Corp in Virginia: Step-by-Step

An S Corp is a tax classification, not a standalone entity. You must have an active Virginia corporation or LLC on file with the SCC 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.

Step 1: File IRS Form 2553 (Federal S Corp Election)

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. [3]

How To File Form 2553

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]

Step 2: Confirm Virginia Recognition

Virginia follows the federal S Corp classification automatically under Va. Code § 58.1-441. Once the IRS accepts your Form 2553, file Form 502 annually. No separate state election form is required. [1] [14]

Step 3: Set Up Payroll and Pay Reasonable Compensation

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.

What Setting Up Payroll Involves

• Choosing a payroll system to process your W-2 salary and withhold taxes
• Making federal payroll tax deposits using Form 941 (quarterly)
• Registering with the Virginia Employment Commission for state unemployment insurance. [11]
• Registering with Virginia Tax for state income tax withholding (Form R-1 Combined Registration Application). [12]
• Filing annual W-2 forms with the Social Security Administration and the Virginia Tax

Step 4: Get an Employer Identification Number (EIN)

If you do not already have an EIN, apply at no charge on the IRS website (irs.gov).

Compliance and Ongoing Requirements

Annual Registration Fee

Virginia corporations pay an annual registration fee to the SCC tiered by authorized shares, starting at $50 for 5,000 or fewer shares (Va. Code § 13.1-775.1). LLCs pay a flat $50 (§ 13.1-1062). Both are due by the last day of the entity’s anniversary month each year. [5]

Tax Returns

File IRS Form 1120-S and distribute Schedule K-1s to all shareholders by March 15 (calendar-year filers). File Virginia Form 502 by April 15. If the S Corp has elected the PTET, file Form 502PTET in addition. [14] [7]

Extensions

Virginia grants an automatic 6-month filing extension for pass-through entities. No separate extension request is required, but any balance due must still be paid by the original due date (April 15) to avoid penalty. [14]

Estimated Tax

Pay quarterly estimated PTET on Form 502W if PTET liability exceeds $1,000. Shareholders separately pay quarterly Form 760ES estimated tax on Virginia personal income. [7]

Late Filing Penalties

Late filing of Form 502 incurs a $200 late-filing penalty plus 6% per month penalty on unpaid tax (maximum 30%), plus interest at the federal underpayment rate plus 2%. [14]

What Happens If You Miss the S Corp Election Deadline in Virginia?

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 Virginia follows the federal S election automatically, no separate state late-election process is required. [1]

How to Revoke the S Corp Election

Common Reasons Owners Revoke S Corp Status

• Exceeding 100 shareholders: Beyond the 100-shareholder limit, the business no longer qualifies for S Corp status.
• Bringing in foreign investors: S Corps cannot have non-U.S. citizens or non-resident alien shareholders.
• Planning to go public or raise venture capital: Most institutional investors and IPO structures require C Corp status.
• Tax strategy changes: At higher income levels, the C Corp flat federal rate (21%) plus qualified dividend treatment may outperform pass-through taxation.
• Simplifying structure: Owners who no longer benefit from payroll-tax savings may return to LLC or C Corp taxation.

How to Revoke

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 Virginia follows the federal classification, a federal revocation automatically terminates the Virginia S Corp status. The entity then files Form 500 as a C Corp. [1]

Virginia Taxes for S Corporations

No Entity-Level Corporate Income Tax (S Corps)

Virginia S Corps generally pay no state corporate income tax at the entity level. The 6% corporate income tax under Va. Code § 58.1-400 applies only to C Corps. S Corps file Form 502 to report income and any nonresident shareholder withholding. [6] [14]

Pass-Through Entity Tax (PTET, Elective)

Under Va. Code § 58.1-390.3, qualifying S Corps and partnership-taxed entities may elect to pay Virginia tax on the entity’s Virginia taxable income at a flat 5.75%. The election is annual and is made by filing Form 502PTET. Owners then claim a refundable credit on their Virginia individual return. [7]

Shareholder Personal Income Tax

Virginia imposes a graduated individual income tax under Va. Code § 58.1-320 with brackets at 2%, 3%, 5%, and 5.75% (top bracket on taxable income over $17,000). Nonresident shareholders pay tax only on income derived from Virginia sources. [9]

Sales and Use Tax

Virginia state sales tax is 4.3% plus a mandatory 1% local sales tax for a 5.3% base rate. Higher combined rates apply in Northern Virginia, Hampton Roads, Central Virginia, and certain other localities. Register through Virginia Tax. [10]

Cost Breakdown: Starting an S Corp in Virginia

S Corp vs. LLC in Virginia: Comparison

Is an S Corp Right for Your Virginia Business?

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:

Keep in mind that Virginia’s annual registration fee, payroll setup costs, 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.

Annual Requirements at a Glance

Bibliography

[1] Virginia Legislature. Va. Code § 58.1-441 (S Corporation Treatment). Accessed May 18, 2026.

[2] Virginia State Corporation Commission. Virginia Stock Corporations Forms and Fees. Accessed May 18, 2026.

[3] IRS. Instructions for Form 2553. Accessed May 18, 2026.

[4] Virginia Legislature. Va. Code § 13.1-634 (Registered Office and Agent). Accessed May 18, 2026.

[5] Virginia Legislature. Va. Code § 13.1-775.1 (Annual Registration Fee). Accessed May 18, 2026.

[6] Virginia Legislature. Va. Code § 58.1-400 (Corporate Income Tax Rate). Accessed May 18, 2026.

[7] Virginia Legislature. Va. Code § 58.1-390.3 (Elective Pass-Through Entity Tax). Accessed May 18, 2026.

[8] IRS. Where to File Your Taxes (for Form 2553). Accessed May 18, 2026.

[9] Virginia Legislature. Va. Code § 58.1-320 (Individual Income Tax Brackets). Accessed May 18, 2026.

[10] Virginia Tax. Retail Sales and Use Tax. Accessed May 18, 2026.

[11] Virginia Employment Commission. Employer Information. Accessed May 18, 2026.

[12] Virginia Tax. Form 502 and Related Pass-Through Entity Forms. Accessed May 18, 2026.

[13] IRS. S Corporations. Accessed May 18, 2026.

[14] Virginia Legislature. Va. Code § 58.1-392 (Pass-Through Entity Return Filing). Accessed May 18, 2026.

Official Resources

• Virginia State Corporation Commission. Articles of Incorporation, annual registration fee, and corporate filings.
• Virginia Department of Taxation. Form 502, Form 502PTET, withholding, and tax guidance.
• Virginia Employment Commission. Unemployment insurance registration and employer obligations.
• Virginia Legislative Information System. Code of Virginia, including the Virginia Stock Corporation Act and Tax Code.