Yes — an LLC can be taxed as an S corp by filing IRS Form 2553 with the IRS, so long as the LLC meets the eligibility rules in Section 1361 of the Internal Revenue Code. The IRS doesn’t treat “LLC” as a tax classification on its own. It lets the LLC choose to be taxed as a sole proprietorship, partnership, C corporation, or S corporation, and the S corp route often lowers the total tax bill for profitable businesses by shifting some income out of self-employment tax.1
Why Owners Make the Election
The reason comes down to one number: 15.3%. That’s the combined self-employment tax rate — 12.4% for Social Security and 2.9% for Medicare — that LLC members normally pay on every dollar of business profit passed through to their individual returns. Under default LLC taxation, all profit gets hit with this on top of regular income tax.
S corp taxation changes the split. Owner-employees pay themselves a salary that runs through payroll and carries payroll taxes like any other wage. Profit above that salary can be taken as a distribution, and S corporation distributions aren’t subject to Social Security or Medicare taxes. For 2026, Social Security tax applies to wages up to $184,500, so the savings matter most for businesses earning well above what the owner reasonably takes as pay.
A worked example: if your LLC earns $150,000 in profit and you pay yourself a reasonable salary of $80,000, the remaining $70,000 taken as a distribution avoids the 15.3% self-employment tax. That’s roughly $10,700 saved in a single year. The tradeoff is complexity. You’ll run payroll, file more forms, and need to justify the salary if the IRS asks.
Which LLCs Qualify
Not every LLC is eligible. Section 1361 sets firm limits, and breaking any of them after the election can terminate the status immediately.
- The LLC must be a domestic entity, formed and operating in the United States.
- It can have no more than 100 members. Spouses and certain family members count as a single member, so family-run businesses have more room than the cap suggests.
- Only individuals, estates, and certain qualifying trusts can hold ownership. Corporations, partnerships, and most institutional entities cannot be members.
- Every member must be a U.S. citizen or resident alien. A single nonresident alien member disqualifies the LLC.
- The LLC can have only one class of economic interest. All membership units must carry identical rights to distributions and liquidation proceeds. Voting rights can differ; the economic split cannot.
That last rule is the one that trips up LLCs most often. LLCs are normally free to split profits however members agree — 50/50 ownership with 70/30 profit sharing, for instance. That flexibility disappears under S corp taxation. If your operating agreement gives any member a disproportionate share of distributions or liquidation proceeds, the LLC fails the single-class-of-stock test. Review the operating agreement before filing and amend it if the economic rights aren’t proportional to ownership.
The qualifying trust categories are narrow: a grantor trust with a single U.S. citizen or resident owner, a Qualified Subchapter S Trust that distributes all income annually to a single U.S. citizen or resident beneficiary, an Electing Small Business Trust, or a testamentary trust for a limited period after the grantor’s death. A membership interest passing to any other kind of trust ends the election.
How to File Form 2553
An LLC does not need to file Form 8832 (the entity classification election) first. Filing Form 2553 on its own is treated as an automatic election to be classified as a corporation and then immediately as an S corporation, in one step.
Before filling out the form, have the following ready:
- The LLC’s nine-digit Employer Identification Number. If it hasn’t been issued yet, you can write “Applied For” with the application date.
- The LLC’s formation date. For an LLC electing in its first tax year, this is the earliest of the date the LLC first had members, first had assets, or began doing business.
- The tax year you’re choosing. Most LLCs use a calendar year; a fiscal year requires added justification on the form.
- Unanimous member consent. Every member must sign the consent section or attach a separate signed consent, providing name, address, and Social Security Number (or ITIN, or EIN for a trust or estate).
The consent requirement is absolute. If one member refuses or is unreachable, the election cannot proceed. Once made, a valid consent is binding and cannot be withdrawn.
The Filing Deadline
Under 26 U.S.C. § 1362(b), Form 2553 must be filed either during the preceding tax year or no later than two months and 15 days into the tax year the election should begin. For a calendar-year LLC wanting S corp status starting January 1, 2026, the form must reach the IRS by March 16, 2026. Miss that window and the election generally takes effect the following year, unless you qualify for late-filing relief.
The form goes to one of two IRS service centers — Kansas City, MO 64999 or Ogden, UT 84201 — depending on the state where the LLC’s principal office sits. The current Form 2553 instructions list the state assignments and fax numbers. After processing, the IRS mails a CP261 notice confirming the election and its effective date. Keep that notice permanently; lenders, banks, and tax professionals will ask for it.
Late Election Relief
If you missed the deadline, Revenue Procedure 2013-30 provides a path to fix it without requesting a private letter ruling. You can file up to three years and 75 days after the intended effective date.
To qualify, all of the following must be true:
- The LLC intended to be classified as an S corporation as of the requested effective date.
- The only reason the LLC didn’t qualify was that Form 2553 wasn’t filed on time.
- You have a reasonable cause explanation for the late filing — reliance on a professional who didn’t file, medical emergency, genuine ignorance of the requirement. The IRS looks at whether the circumstances actually prevented filing.
- The LLC has filed all its tax returns consistent with S corp status (using Form 1120-S) for every year since the intended effective date.
Write “Filed Pursuant to Rev. Proc. 2013-30” across the top of the late Form 2553 and attach the reasonable cause statement. If you’re also filing a late Form 1120-S, use the same notation there. If you fall outside the three-year-and-75-day window, the remaining option is a private letter ruling, which is slower and carries a user fee starting in the thousands of dollars.
What Changes After the Election
Once the election takes effect, the LLC stops filing as a partnership (Form 1065) or a disregarded entity (Schedule C) and files Form 1120-S each year. For calendar-year filers, the 2025 return is due March 16, 2026, extendable to September 15.
The S corporation itself generally pays no federal income tax. Profits and losses flow through to members on a Schedule K-1, and each member reports their share on their individual return.
Running payroll for owner-employees adds several ongoing filings:
- Form 941, filed quarterly, reports federal income tax withheld from wages along with both the employer and employee shares of Social Security tax (6.2% each for 2026) and Medicare tax (1.45% each).
- Form 940, filed annually, reports federal unemployment tax on the first $7,000 of wages per employee. The gross rate is 6.0%, but a credit of up to 5.4% applies in most states, bringing the effective rate to 0.6%.
- Form W-2, issued annually to each owner-employee and filed with the Social Security Administration, reports total wages and taxes withheld.
Paying Yourself a Reasonable Salary
This is where the IRS looks hardest. Any member who performs more than minor services for the business and receives compensation has to be paid a reasonable salary before taking distributions. The IRS has won multiple court cases against owners who paid themselves artificially low wages to maximize tax-free distributions.
In one well-known case, an S corporation shareholder paid himself $24,000 per year while taking large distributions. The Eighth Circuit held that the test is whether the payments “were truly remuneration for services performed”; the owner’s intent to limit wages was irrelevant. The court required additional wages to be reclassified, with back payroll taxes and penalties.
The IRS publishes no specific formula. The factors that matter include what similar roles pay in your geographic area, the member’s training and experience, time devoted to the business, and what the company would have to pay an outside person to do the same work. Bureau of Labor Statistics data and industry compensation surveys give a defensible starting point. Err toward a salary you can justify rather than the bare minimum; the payroll tax savings on distributions won’t survive an audit if the IRS reclassifies them as wages.
How S Corp Status Can End
The election isn’t permanent. It can end voluntarily by revocation or involuntarily by a broken eligibility rule.
Voluntary Revocation
Members holding more than 50% of all outstanding ownership interests, voting and nonvoting, must consent in writing. A revocation made on or before the 15th day of the third month of the tax year applies retroactively to the first day of that year. After that date, it takes effect on the first day of the following tax year. Members can also specify a future effective date for a clean transition.
Involuntary Termination
The election terminates automatically the moment the LLC stops meeting any eligibility requirement — for example, if a nonresident alien acquires a membership interest, or if the operating agreement is amended to create unequal distribution rights. Termination is effective on the date of the disqualifying event, not the end of the tax year, which can leave the LLC filing two short-year returns for that period.
A separate passive income rule can also terminate the election, but it applies only to LLCs carrying over earnings and profits from prior C corporation status or from a merger with a C corporation. An LLC that has only ever been a pass-through entity is not affected.
State-Level Considerations
A federal S corp election doesn’t automatically carry over to every state. Several states require a separate filing. New York uses Form CT-6. New Jersey uses Form CBT-2553. Mississippi requires its own S corp election within 60 days of the federal filing. Ohio requires an annual notice filed between January 1 and March 31.
Some states also impose entity-level taxes on S corporations that don’t apply to default LLCs. California, for example, charges an annual minimum franchise tax regardless of S corp status. Before electing, check whether your state has a separate franchise tax, requires an independent election, or treats S corporation income differently from partnership income. A state tax that offsets your federal self-employment tax savings can turn the election into a net loss.
Annual report and franchise fees for LLCs also vary widely across states and continue regardless of federal tax classification. Weigh those ongoing costs, along with payroll processing and the more complex annual return, against the projected payroll tax savings before you file.