Executive summary
- How: an LLC gets S corporation tax treatment by filing Form 2553. You don't need to form a new company.
- Deadline for 2027: file by March 15, 2027 to start January 1, 2027. A calendar-year company can also file at any time during 2026.
- Who qualifies: 100 or fewer shareholders, all individuals, certain trusts or estates, no nonresident alien shareholders, and one class of stock.
- What changes: owners who work in the business are paid reasonable wages through payroll, and the company files Form 1120-S plus a state return each year.
Bottom line: The election can lower self-employment tax once profit is comfortably above a reasonable salary. It also adds payroll and filing costs, so run the numbers before you file.
An LLC is not a tax classification. By default, a single-member LLC is taxed as a sole proprietorship and a multi-member LLC as a partnership. An LLC taxed as an S corp keeps its LLC legal structure but is taxed under the S corporation rules. The company generally pays no federal income tax itself. Profit passes to the owners, who report it on their own returns.
Who can have an LLC taxed as an S corp?
The IRS requires the company to be a domestic corporation, or an eligible entity such as an LLC that chooses to be taxed as one. It must also meet these tests:
- No more than 100 shareholders.
- Only allowable shareholders: individuals, certain trusts and estates. Partnerships, corporations and nonresident aliens can't be shareholders.
- One class of stock. Distributions must follow ownership percentages.
When an LLC files Form 2553 and meets these tests, the IRS treats it as having chosen to be taxed as a corporation, so a separate Form 8832 is generally not needed.
Form 2553 deadline for 2027
File Form 2553 no more than 2 months and 15 days after the start of the tax year the election is to take effect, or at any time during the tax year before it. For a calendar-year LLC that wants S status starting January 1, 2027, that means:
- Any time in 2026, or
- By March 15, 2027, at the latest.
All shareholders must consent. Miss the date and the election generally starts the following year, unless you qualify for late-election relief under Rev. Proc. 2013-30. That relief requires, among other things, reasonable cause and that the company acted as an S corporation, so don't plan around it.
What changes after the election
| Item | Before (default LLC) | After (S corp) |
|---|---|---|
| Owner pay | Draws; all profit is self-employment income | Reasonable wages on payroll, plus distributions |
| Employment tax | Self-employment tax on net profit | Payroll tax on wages only, not on distributions |
| Federal return | Schedule C or Form 1065 | Form 1120-S, due March 15 |
| State return | Varies | NJ CBT-100S, NY CT-3-S and others |
Reasonable compensation: the rule that decides the savings
An S corporation must pay a shareholder-employee reasonable compensation for the services they perform before non-wage distributions are made. The IRS can reclassify distributions as wages when pay is too low. Reasonable depends on the work, training, experience, time and what similar businesses pay for similar work.
A rough example
Say an LLC has $120,000 of net profit and the owner's reasonable salary is $60,000. As a sole proprietor, self-employment tax is about $16,956 (15.3% of 92.35% of $120,000). As an S corp, payroll tax on the $60,000 salary is $9,180 (15.3%). The difference is about $7,800.
That figure is before the added costs: payroll processing, a Form 1120-S return, a state return and often higher bookkeeping fees. It also ignores income tax effects. If profit is close to a reasonable salary, there is little to save, so run your own numbers with our S corp tax savings calculator.
New Jersey and New York
- New Jersey: there is no separate state S election for periods beginning on or after December 22, 2022. The federal election carries over. File the CBT-100S with Schedule SJC and proof of federal S status. The minimum tax runs from $375 to $1,500 based on New Jersey gross receipts.
- New York: 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.
Other states differ, and a few tax S corporations differently, so check your state before you file.
FAQs
No. An existing LLC can file Form 2553 and keep its legal structure.
March 15, 2027 for an election effective January 1, 2027. A calendar-year company can also file at any time during 2026.
Possibly. Rev. Proc. 2013-30 offers relief when there is reasonable cause and the company has acted as an S corporation, but the conditions are strict.
Yes. A shareholder who works in the business must be paid reasonable wages before non-wage distributions.
It depends on profit, salary, state taxes and the added costs. It tends to make sense when profit is well above a reasonable salary.
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 decide on and set up S corporation treatment. See our S corp election service, our Form 1120-S guide and our Form 1065 guide for LLCs, or book a call below.
Save the key dates
- Mon, Mar 15, 2027Last day to file Form 2553 for S status starting January 1, 2027 That is 2 months and 15 days after the year begins. A calendar-year company can also file at any time during 2026 for a January 1, 2027 start.
Add to calendar
- Mon, Mar 15, 2027Form 1120-S due for calendar-year 2026 S corporations File Form 1120-S or Form 7004 for an extension. Late penalty: $260 per shareholder per month, up to 12 months.
Add to calendar
- Thu, Apr 15, 2027NJ: CBT-100S due (calendar-year 2026) New Jersey has no separate S election for periods beginning on or after December 22, 2022. Schedule SJC and proof of federal S status are filed with the return.
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Sources
- IRS: S corporations
- IRS: Instructions for Form 2553
- IRS: Form 2553, Election by a Small Business Corporation
- IRS Rev. Proc. 2013-30: late S corporation election relief
- IRS: S corporation compensation and medical insurance issues
- IRS: Self-employment tax (Social Security and Medicare)
- IRS: Instructions for Form 1120-S (2025)
- NJ Division of Taxation: 2025 CBT-100S instructions
- NY Department of Taxation and Finance: Instructions for Form CT-3-S
Facts checked against the sources above as of October 26, 2026. This article is general information, not tax, legal, or financial advice, and reading it does not create a client relationship. Tax rules change and every situation is different; confirm the details for your situation with a qualified professional before acting.