A Professional Limited Liability Company can be taxed as an S corporation. You file IRS Form 2553, and if the PLLC meets the eligibility rules, the IRS treats it as an S corporation for federal tax purposes while your state keeps treating it as a PLLC for licensing and liability. Nothing changes about your professional obligations. What changes is how much you pay in employment taxes once your profits exceed what you’d reasonably pay yourself in salary.
Where the Tax Savings Come From
Without the election, a single-member PLLC is taxed as a sole proprietorship and a multi-member PLLC as a partnership. All net income flows to the owners and gets hit with self-employment tax at a combined 15.3%: 12.4% Social Security on earnings up to $184,500 in 2026, plus 2.9% Medicare on everything. An additional 0.9% Medicare tax applies above $200,000 for single filers or $250,000 for joint filers.1Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
After the S election, owners who work in the business pay themselves a salary subject to payroll taxes. Profit distributed on top of that salary isn’t subject to employment taxes. If a solo attorney’s PLLC nets $250,000 and she pays herself $130,000, only the $130,000 carries payroll taxes. The remaining $120,000 in distributions escapes the 15.3%, saving roughly $18,000 a year. That is the entire reason professionals look at this.
Whether Your PLLC Qualifies
The IRS requires an S corporation to meet all of the following:
- Be organized under the laws of a U.S. state or territory.
- Have 100 or fewer shareholders, with family members countable as one.
- Have only eligible shareholders: individuals, certain trusts, or estates. Partnerships, corporations, and nonresident aliens cannot hold an interest.
- Have one class of stock. Differences in voting rights alone don’t count as a second class.
- Not be an ineligible corporation (certain financial institutions, insurance companies, and domestic international sales corporations).
Most PLLCs already clear the shareholder rules without trying. State professional licensing boards typically require that only individually licensed professionals own interests in a PLLC, which excludes exactly the kinds of owners the IRS prohibits.2Office of the Law Revision Counsel. 26 USC 1361 – S Corporation Defined
Making the Election
You make the election by filing IRS Form 2553. Every person who owns an interest in the PLLC on the day the election is made must sign the consent section.3Office of the Law Revision Counsel. 26 USC 1362 – Election, Revocation, Termination
You Do Not Need Form 8832 First
Because a PLLC is an LLC, people often assume it has to file Form 8832 to elect corporate status before it can file Form 2553. That extra step isn’t necessary. Under Treasury regulations, an eligible entity that timely files Form 2553 is automatically treated as having elected corporate classification. Both elections happen at once.4Internal Revenue Service. FAQs on Limited Liability Company Classification
The Deadline
Form 2553 must be filed no later than two months and 15 days after the first day of the tax year the election should take effect, or anytime during the preceding tax year. For a calendar-year PLLC, that means March 15. File after that and the election usually applies to the next tax year instead of the current one.5Internal Revenue Service. Instructions for Form 2553
If You Missed the Deadline
Missing the deadline doesn’t automatically cost you a year. The IRS grants relief for late elections if the PLLC intended to be an S corporation and is otherwise eligible, the failure was due to reasonable cause, the entity and owners reported income consistently with S status for the year in question and every year after, and fewer than 3 years and 75 days have passed since the intended effective date. You file Form 2553 with a reasonable-cause statement attached. Many of these get processed without a private letter ruling.6Internal Revenue Service. Late Election Relief
The Reasonable Salary Requirement
This is where most of the risk sits. Once the PLLC is an S corporation, every owner who works in the business must receive salary that reflects fair market compensation for the work actually performed. The IRS position is direct: if a shareholder receives cash or has the right to receive it, the S corporation must pay a reasonable salary before making distributions.7Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers
Paying yourself a token salary and taking the rest as distributions is the obvious temptation, and the IRS and tax courts have shut it down repeatedly. In the Watson case, the Eighth Circuit upheld a finding that a CPA paying himself $24,000 while taking large distributions wasn’t paying reasonable compensation. If the IRS reclassifies distributions as wages, you owe the unpaid employment taxes plus interest and penalties.7Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers
The IRS looks at comparable pay for similar roles at similar businesses, the owner’s training and experience, time devoted to the business, what non-owner employees earn for similar work, and the entity’s distribution history. Comparable market pay carries the most weight. A radiologist running a solo PLLC can’t justify a $50,000 salary when employed radiologists earn three times that.8Internal Revenue Service. Fact Sheet FS-2008-25 – Wage Compensation for S Corporation Officers
The QBI Deduction Tradeoff
Most professionals who form PLLCs work in law, medicine, accounting, consulting, or financial services. All of these are Specified Service Trades or Businesses under Section 199A, which puts income-based limits on the 20% qualified business income deduction that other businesses don’t face.9eCFR. 26 CFR 1.199A-5 – Specified Service Trades or Businesses and the Trade or Business of Performing Services as an Employee
The QBI deduction, made permanent by the One Big Beautiful Bill Act signed in July 2025, lets eligible owners deduct up to 20% of qualified business income. For SSTB owners filing jointly in 2026, the deduction phases out between roughly $394,600 and $544,600 in taxable income. Above that range, SSTB owners get no QBI deduction at all.
The S election interacts with this in a way that matters. Salary isn’t qualified business income; only the profit remaining after your salary counts. If your PLLC nets $300,000 and you pay yourself $150,000, your QBI is $150,000, giving a maximum deduction of $30,000. As a sole proprietor, the full $300,000 would have been QBI, potentially yielding $60,000. The employment tax savings need to exceed the lost QBI deduction for the election to pay off. For higher earners already above the SSTB phase-out, the deduction is gone either way, so the S election becomes a clean win on employment taxes. For anyone in or below the phase-out range, run the numbers both ways before filing.
What Changes After the Election
The PLLC files Form 1120-S each year and issues a Schedule K-1 to each owner.10Internal Revenue Service. About Form 1120-S, U.S. Income Tax Return for an S Corporation Owners are now employees, so the PLLC runs payroll: federal income tax, Social Security, and Medicare withholding on each paycheck, plus the employer’s share. Form 941 is filed quarterly.11Internal Revenue Service. About Form 941, Employer’s Quarterly Federal Tax Return You’ll also issue W-2s and handle federal and state unemployment filings. Most PLLCs use a payroll service, which runs roughly $500 to $2,000 per year.
Health insurance gets a specific wrinkle for any owner holding more than 2%, which includes essentially every solo practitioner. The S corporation can pay your premiums, but those premiums go on your W-2 in Box 1. They stay out of Boxes 3 and 5, so they aren’t subject to Social Security or Medicare. You then take the self-employed health insurance deduction on your personal return. Miss the Box 1 reporting and you lose the deduction. Put the premiums into Boxes 3 and 5 by mistake and you pay FICA you didn’t owe. The same W-2 treatment applies to HSA contributions the S corporation makes on your behalf.
Pass-through losses also work differently than in a partnership. S corporation shareholders only get basis from their stock and direct loans to the entity, not from entity-level debt, even debt they personally guarantee. Losses above basis suspend and carry forward.12Internal Revenue Service. S Corporation Stock and Debt Basis
How the Election Can Be Lost
The election stays in effect until revoked or terminated. Termination happens automatically if the PLLC stops meeting any eligibility requirement. For a professional practice, the usual risks are admitting an ineligible owner, such as another entity or a nonresident alien, or making unequal distributions. Disproportionate distributions can be read as a second class of stock, which terminates the election. Even a one-time bookkeeping error could technically do it.
If termination was inadvertent and gets corrected quickly, the IRS offers simplified relief without a private letter ruling. Once terminated without relief, the PLLC generally can’t re-elect S status for five tax years.3Office of the Law Revision Counsel. 26 USC 1362 – Election, Revocation, Termination
State Treatment Is Not Automatic
The S corporation election is federal. Most states follow it, but some don’t recognize the S election at all and some impose entity-level taxes on S corporations that can erode the federal savings. Minimum franchise or excise taxes may apply regardless of income. Your state may also require its own S election filing on top of Form 2553. Confirm how your state handles it before you file, so the first state return doesn’t surprise you.