Does Pennsylvania Require a Separate S Corp Election?

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S Corporation Essentials in Pennsylvania

Pennsylvania recognizes S corporations. Any federal S corporation is automatically a PA S corporation, unless they elect out using form REV-976.

How to Form an S-Corp in Pennsylvania

To form an S-Corp in Pennsylvania:

  1. Incorporate
  2. File IRS Form 2553 to elect S-Corp status
  3. Obtain necessary licenses

A non-resident can form a Pennsylvania LLC. Forming an S-Corp provides tax advantages, such as avoiding double taxation on the corporate income. S corporations pass corporate income, losses, deductions, and credits to their shareholders. To elect S Corporation status in Pennsylvania, file the election form within 75 days of incorporating or within 75 days of first activity if the corporation does not commence business immediately.

Tax Considerations for S Corps in Pennsylvania

  • S Corp income is taxable for Pennsylvania shareholders at a personal income tax rate of 3.07%.
  • Pennsylvania does not have a corporate income tax on S Corps, except to the extent of built-in gains.
  • To change back to a C Corporation, you must file with the IRS, and you cannot convert back for 5 years.

Starting a Pennsylvania LLC

Starting a Pennsylvania LLC and electing S corp tax status involves:

  1. Naming your LLC
  2. Choosing your Pennsylvania Registered Agent
  3. Filing the Pennsylvania LLC Certificate of Organization
  4. Creating an LLC Operating Agreement
  5. Getting an EIN and completing IRS Form 2553 on their website

Before starting, compare LLC and S Corp structures in Pennsylvania to choose what suits your business’s unique needs and goals.

National S Corp Requirements and Tax Information

S corporations must meet the IRS requirements:

  • Be a domestic corporation
  • Have allowable shareholders including individuals, certain trusts, and estates
  • Have no more than 100 shareholders
  • Have only one class of stock
  • Shareholders must be U.S. citizens or legal residents

In addition to the federal election, there are three states (New York, New Jersey, and Arkansas) that require a separate state election application after the IRS has approved the federal election. An S corp election must be made by filing Form 2553 no later than two months and 15 days after the beginning of the corporation’s tax year.

For further clarity, an S corp is a corporation that elects to pass corporate income to shareholders for federal, state, and local tax purposes. This classification allows corporations with less than 100 shareholders to be taxed as a partnership, providing limited liability with partnership-like taxation.

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