Form 1120-S and S Corp Distributions: How They're Taxed

Form 1120-S is the federal income tax return for an S corporation. The company generally pays no federal income tax itself. Its profit or loss passes through to the shareholders, each of whom gets a Schedule K-1 (Form 1120-S) showing their share, and the shareholders pay tax on their own returns. This guide covers who files, the 2027 deadlines, how S corp distributions are taxed and the New Jersey and New York returns.

Form 1120-S due date 2027: who files and when

A corporation files Form 1120-S if it elected S corporation status on Form 2553, the IRS accepted the election and it is still in effect. To qualify, the company must be a domestic corporation with no more than 100 shareholders, only allowable shareholders (individuals, certain trusts and estates), and only one class of stock.

• March 15, 2027: the due date for calendar-year 2026 returns (the 15th day of the 3rd month after year-end).
• September 15, 2027: the extended date, with Form 7004 filed by March 15. The extension is generally 6 months.
• E-filing: S corporations that file 10 or more returns of any type in a year must e-file Form 1120-S.
• New election: to be an S corporation for a year, file Form 2553 no more than 2 months and 15 days after that year begins, or at any time during the year before.

Form 1120-S late filing penalty

For returns required to be filed in 2027, the penalty is $260 per shareholder for each month or part of a month the return is late, up to 12 months (Rev. Proc. 2025-32). With two shareholders, three months late is $1,560, and a full year late is $6,240. (The 2025 Form 1120-S instructions show $255 for returns due in 2026; the amount is adjusted for inflation each year.)

How are S corp distributions taxed?

A distribution is money or property the corporation pays out to a shareholder as an owner. How it's taxed depends on S corp shareholder basis, also called stock basis, which is roughly what the owner has put in plus the income the S corporation has passed through, less what has been taken out.

For example, if an owner has $20,000 of stock basis and takes a $25,000 distribution, $20,000 is not taxed and $5,000 is capital gain. Debt basis isn't counted for this test.

Two practical points. First, the Schedule K-1 reports the distribution (box 16, code D) but does not state the taxable amount, so you have to track basis yourself. Second, stock basis is adjusted at year-end in this order: up for income, then down for distributions, then down for non-deductible expenses, then down for losses. Shareholders who receive a non-dividend distribution generally file Form 7203 with their return to show basis.

S corporation reasonable compensation: wages vs. distributions

S corporations must pay reasonable compensation to a shareholder-employee for services before non-wage distributions are made. The reason is payroll tax: wages are subject to employment taxes and non-wage distributions are not. The IRS can reclassify payments labeled as distributions as wages. Payments to the shareholder are wages to the extent receipts come from that shareholder's personal services.

Close the books and run owner wages through payroll all year, so the numbers are ready when the return is.

Key Form 1120-S schedules to get right

• Schedule K and one K-1 per shareholder. Line 16d of Schedule K reports distributions, and Schedule M-2 tracks the accumulated adjustments account.
• Schedules L and M-1 can be skipped if total receipts and total assets are both under $250,000 (Schedule B).

New Jersey and New York S corporation returns

• New Jersey (NJ CBT-100S): due the 15th day of the month after the federal due month, so April 15, 2027 for calendar 2026. The minimum tax runs from $375 to $1,500 based on New Jersey gross receipts. A six-month extension requires paying at least 90% of the tax, and there is no extension of time to pay.
• New York (CT-3-S): due March 15 for calendar-year filers. A federal S corporation must file Form CT-6 and get approval before filing the CT-3-S. The fixed dollar minimum tax runs from $25 to $4,500 based on New York receipts.

Merchant Financial Advisory (MFA), an accounting, tax and business solutions provider in Princeton, New Jersey, helps individuals and small and mid-sized businesses in New Jersey, New York and nationwide with S corporation returns, owner pay and year-end books. See our business tax services, our Form 1065 guide for LLCs and our 2027 tax calendar, or book a call below.