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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 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. [12]
In Washington, an S Corporation has no state income tax obligation. The S Corp pays no state-level income or franchise tax. Shareholders also have no Washington personal income tax on pass-through ordinary income. Washington funds its government primarily through B\&O tax on business gross receipts (per RCW 82.04), retail sales and use tax, and other excise-style taxes. [1] [6 [17]
For business owners earning $60,000 or more in net business income, the S Corp election can provide meaningful federal 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. This is the primary reason to elect S Corp status in a no-income-tax state like Washington. [13]
| 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. No Washington income tax return is required. [3] [6] |
| File Annual Report | By the entity anniversary date each year | Filed with the WA Secretary of State. $70 for profit entities. Late filings incur a $25 delinquency fee. [2] [16] |
| File B\&O Tax Return | Monthly, quarterly, or annually (assigned by DOR) | All Washington businesses with a UBI must file a Combined Excise Tax Return that includes B\&O tax, even when no tax is due.[6] [15] |
| File Sales/Use Tax Returns | Monthly, quarterly, or annually (filed with the B\&O return) | Required if the S Corp sells tangible personal property or taxable services. The state rate is 6.5%, with local additions on top. [7] |
| Pay federal estimated tax | April 15, June 15, September 15, January 15 | Required if you expect to owe more than $1,000 in federal income tax. No Washington estimated income tax is required. |
| Set up payroll | Before paying yourself a salary | Register with the Washington Employment Security Department for unemployment insurance and with Paid Family and Medical Leave for state premiums. [9] [14] |
An S Corp is a tax classification, not a standalone entity. You must have an active Washington 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. [3]
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.
Submit by mail or fax. No filing fee.
Mail to: Department of the Treasury, Internal Revenue Service, Ogden, UT 84201. Fax: 855-214-7520.[8]
Because Washington has no state income tax, there is no state-level S Corp election. The federal Form 2553 election is the only S election required for a Washington entity. However, you still need to be registered with the Washington Department of Revenue through the Business Licensing Service for B\&O tax purposes. [1] [15]
All businesses operating in Washington must apply for a Business License through the DOR Business Licensing Service (BLS) and obtain a Unified Business Identifier (UBI). The base application fee is $90 plus any required city or regulatory endorsements. This step registers your S Corp for B\&O tax, retail sales tax, and other state tax accounts. [15]
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.
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.
Filing annual W-2 forms for yourself and any other employees
Even though Washington has no income tax, the federal 15.3% self-employment tax on the wage portion still applies and is the primary reason to elect S Corp status.
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.
Washington corporations and LLCs must file an annual report with the Secretary of State each year by the entity anniversary date. The fee is $70 for profit business entities. A $25 delinquency fee applies to late filings. [2] [16]
All Washington businesses with an active tax account file the DOR Combined Excise Tax Return. This single return reports B\&O tax, retail sales tax, use tax, and any other state excise taxes you owe. DOR assigns each business a monthly, quarterly, or annual filing frequency based on expected tax liability. Even if no tax is due, the return must be filed. [6] [7]
File IRS Form 1120-S and distribute Schedule K-1s to all shareholders by March 15 (calendar-year filers). No Washington state income tax return is required. [3] [1]
If you expect to owe more than $1,000 in federal income tax after withholding, pay quarterly estimated tax using Form 1040-ES. No Washington estimated income tax is required.
S Corps with W-2 employees (including shareholder-employees) report quarterly wages and pay unemployment insurance taxes through the Employment Security Department, and remit PFML premiums quarterly through the Paid Leave portal. [9] [14]
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 federally as a C Corporation (or as a sole proprietorship or partnership if the underlying entity is an LLC), costing you the federal 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, and confirm that the entity has consistently filed as if the S election were in effect. [3]
Because Washington has no state income tax, missing the federal deadline has no state income tax consequences. Your B\&O tax filing obligations are unchanged because B\&O tax applies regardless of federal tax classification. [6]
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. [3]
Because Washington has no state income tax, revocation has no state income tax consequences. Your B\&O account with DOR remains active until you close the business. [6]
Washington imposes no state individual or corporate income tax. S Corps in Washington file no state income tax return and pay no state income tax at the entity level. Shareholders also pay no Washington personal income tax on their pass-through ordinary income. [1]
Washington B\&O tax, imposed under RCW 82.04, is the primary state-level tax on S Corps. It applies to gross receipts (not net income), and the rate depends on the business activity classification. Every active business with a UBI files the DOR Combined Excise Tax Return, even when no tax is due. [6] [17]
Common major B\&O classifications and current rates:
| Classification | Rate | Typical Businesses |
|---|---|---|
| Retailing | 0.471% [10] | Retail sales of goods to consumers |
| Wholesaling | 0.484% [10] | Sales for resale |
| Manufacturing | 0.484% [10] | Manufacturing of goods |
| Service and Other Activities (under $1M prior-year revenue) | 1.5% [10] | Most professional services and small consulting S Corps |
| Service and Other Activities ($1M to $4.99M prior-year revenue) | 1.75% [10] | Mid-size service businesses |
| Service and Other Activities ($5M or more prior-year revenue) | 2.1% [10] | Large service firms |
A small-business B\&O credit may reduce or eliminate tax owed for low-revenue businesses, depending on classification. Check the current credit table on the DOR website. [6]
Washington retail sales tax is 6.5% at the state level on most tangible personal property and certain services. Local cities and counties add additional sales tax that brings combined rates to roughly 7% to 10.6% depending on location. Use tax applies to taxable items purchased without sales tax for use in Washington. [7]
Effective for tax years beginning January 1, 2022, Washington imposes a 7% tax on long-term capital gains above the annual standard deduction (RCW 82.87). The standard deduction was $270,000 for 2024 and $278,000 for 2025, indexed annually for inflation. The tax applies only to individuals (not to the S Corp itself), but it can reach S Corp shareholders on gains from the sale of stock, business interests, or assets held through a pass-through entity allocated to Washington. [11] [18]
Exemptions include the sale of all or substantially all of a qualified family-owned small business, real estate, retirement accounts, and assets held within entities to the extent B\&O tax applies to the same transaction. Charitable contributions in excess of the standard deduction are also deductible up to an inflation-adjusted cap. Consult your CPA before any major liquidity event. [11]
S Corps providing utility services (water, light and power, gas distribution, telephone, and certain transportation) pay Washington Public Utility Tax instead of B\&O tax on those gross receipts. Other industry-specific excises may apply for businesses such as tobacco distributors, marijuana retailers, and litter-tax payers. [6]
Washington has no Pass-Through Entity (PTE) tax election because there is no state income tax to be capped or worked around under the federal SALT cap. Federal SALT cap workarounds used in other states do not apply in Washington. [1]
| Item | Cost |
|---|---|
| Articles of Incorporation (corporation) | $180 standard filing fee [2] |
| Certificate of Formation (LLC) | $180 standard filing fee [2] |
| Expedited processing (optional, by mail) | Additional $100 for three-day expedited service [2] |
| Same-day filing (optional) | Additional $150 per business entity [2] |
| IRS Form 2553 filing | No fee [3] |
| Federal EIN (Form SS-4) | No fee |
| Washington Business License (BLS) | $90 base application fee, plus endorsements [15] |
| Annual Report (profit entity) | $70 [2] |
| Annual Report delinquency fee | $25 late fee [2] |
| Registered Agent service (typical commercial) | $100 to $300 per year |
| Feature | S Corporation | LLC |
|---|---|---|
| Formation Document | Articles of Incorporation ($180) | Certificate of Formation ($180) |
| Federal Tax Treatment | Pass-through (Form 1120-S) | Pass-through by default (Form 1065 or Schedule C) |
| Washington Income Tax | None (no state income tax) | None (no state income tax) |
| B\&O Tax | Yes, on gross receipts by classification | Yes, on gross receipts by classification |
| Annual Report Fee | $70 | $70 |
| 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 Needed | No (no state income tax) | No (no state income tax) |
| Annual Report Deadline | By entity anniversary date | By entity anniversary date |
| Best For | Owners earning $60K+ wanting federal SE-tax savings | Small businesses prioritizing simplicity |
Because Washington has no state income tax, the S Corp question in Washington is almost entirely about federal self-employment tax savings. B\&O tax applies whether you are an S Corp, LLC, sole proprietor, or C Corp. Use this guide:
| Net Business Income | Recommendation |
|---|---|
| Under $40,000 | An S Corp likely does not make sense. Federal payroll and compliance costs typically erase the savings. |
| $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 in federal 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 Washington annual report fees, the BLS application fee, payroll setup costs, and ongoing CPA fees add roughly $800 to $2,200 in annual costs. The absence of state income tax is a meaningful advantage of forming in Washington, partially offset by B\&O tax on gross receipts.
| Requirement | Details |
|---|---|
| Form 1120-S (Federal) | Due March 15. Reports S Corp income. Distribute K-1s to shareholders. |
| Annual Report (WA SOS) | Filed by entity anniversary date each year. $70 for profit entities.[2] [16] |
| Combined Excise Tax Return (DOR) | Monthly, quarterly, or annually depending on volume. Covers B\&O, retail sales, and use tax. [6] |
| Form 941 (Federal Payroll Tax) | Filed quarterly. |
| Form 940 (Federal Unemployment Tax) | Filed annually by January 31. |
| WA Employment Security quarterly report | Quarterly unemployment-insurance wage report filed with the ESD. [9] |
| Paid Family and Medical Leave (PFML) report | Quarterly premium report and remittance through the Paid Leave portal. [14] |
| W-2s and 1099s | Distributed by January 31. Filed with IRS and Social Security Administration. |
| Federal Estimated Tax Payments | Quarterly federal estimated tax if expected liability exceeds $1,000. |
| Capital Gains Tax Return (if applicable) | Individual shareholders file with DOR by April 15 if long-term gains allocated to Washington exceed the annual standard deduction. [11] |
| Registered Agent Maintenance | Keep agent and Washington street address current with the Secretary of State under RCW 23.95.415. [4] |
Bibliography
[1] Washington Department of Revenue. Income Tax (No Income Tax in Washington State). Accessed May 19, 2026.
[2] Washington Secretary of State. Fee Schedule and Expedited Service. Accessed May 19, 2026.
[3] IRS. Instructions for Form 2553. Accessed May 19, 2026.
[4] Washington State Legislature. RCW 23.95.415 (Registered Agent). Accessed May 19, 2026.
[5] Washington Secretary of State. Start or Register a Business. Accessed May 19, 2026.
[6] Washington DOR. Business and Occupation Tax. Accessed May 19, 2026.
[7] Washington DOR. Retail Sales Tax (6.5% State Rate). Accessed May 19, 2026.
[8] IRS. Where to File Your Taxes (for Form 2553). Accessed May 19, 2026.
[9] Washington Employment Security Department. Employer Requirements. Accessed May 19, 2026.
[10] Washington DOR. Business and Occupation Tax Classifications and Rates. Accessed May 19, 2026.
[11] Washington DOR. Capital Gains Tax (7% on Long-Term Gains). Accessed May 19, 2026.
[12] IRS. S Corporations. Accessed May 19, 2026.
[13] Social Security Administration. Contribution and Benefit Base (Wage Base for SE Tax). Accessed May 19, 2026.
[14] Washington Paid Family and Medical Leave. Paid Leave Portal and Employer Premiums. Accessed May 19, 2026.
[15] Washington DOR. Business Licensing Service (UBI Application). Accessed May 19, 2026.
[16] Washington Secretary of State. File an Annual Report (Multiple Entity Types) Online. Accessed May 19, 2026.
[17] Washington State Legislature. RCW 82.04 (Business and Occupation Tax). Accessed May 19, 2026.
[18] Washington State Legislature. RCW 82.87 (Capital Gains Tax). Accessed May 19, 2026.
Official Resources
