Single-Member LLC S Corp Election: Form 2553, Salary, Payroll

A single member LLC can elect S corp taxation by filing IRS Form 2553, which keeps the LLC intact under state law but changes how the IRS taxes the profits. The point of the single member LLC S corp election is to cut self-employment tax: instead of paying 15.3% on every dollar of net profit, you pay yourself a reasonable salary, run payroll on that salary, and take the rest as distributions that skip Social Security and Medicare tax. The savings are real once profits are high enough to outrun the added payroll and filing costs. Below that line, the election usually costs more than it saves.

What the Election Actually Changes

By default, the IRS treats a single member LLC as a disregarded entity. Profits land on your Schedule C and the whole net number is hit with 15.3% self-employment tax, covering both halves of Social Security (12.4%) and Medicare (2.9%).¹ On $100,000 of profit, that’s about $15,300 before income tax even enters the picture.

An S corporation is a tax classification, not a separate entity. Your LLC stays an LLC. What changes is how the IRS treats your take: profit gets split between W-2 wages and shareholder distributions. Payroll tax applies to the wages. Distributions pass through to your personal return without Social Security or Medicare tax attached.² You still owe income tax on both halves.

A simplified example. Your LLC nets $120,000. As a disregarded entity, you’d owe roughly $18,360 in self-employment tax on the full amount. As an S corp paying yourself a $60,000 salary, payroll taxes on the wages run about $9,180 between the employer and employee shares, and the remaining $60,000 passes through as a distribution with no payroll tax. The gap is roughly $9,000 a year, give or take, depending on the salary you set.

The Social Security portion only applies up to the wage base, which is $184,500 for 2026.³ Medicare has no cap.

When the Election Is Worth It

The election isn’t free. Payroll processing, the extra Form 1120-S, and more involved bookkeeping typically add $1,000 to $3,000 a year in accounting costs compared to a disregarded entity. The self-employment tax savings have to clear that number before you come out ahead.

Most tax professionals peg the breakeven somewhere around $40,000 to $50,000 of consistent annual net profit. Below that, compliance costs eat the savings. Above $80,000 to $100,000, the math usually favors electing without much debate.

A few things push the answer either way:

If your revenue comes almost entirely from your personal services (consulting, freelancing, professional practice), the IRS expects a larger share of the income to be classified as wages, which limits how much you can shift to distributions.
S corp shareholders must be individuals, certain trusts, or estates, and there can only be one class of stock. If you plan to bring in a corporate partner, a foreign investor, or more than 100 owners, S corp status won’t fit.⁴
Solo 401(k) and other retirement contributions are tied partly to W-2 wages, not total profit. A rock-bottom salary caps your retirement savings along with your payroll tax bill.
The Section 199A qualified business income deduction expired at the end of 2025. If Congress renews it, the trade-off between higher wages (which reduce the QBI base) and payroll tax savings becomes a planning variable again.⁵

How to File Form 2553

The mechanics are simpler than most owners expect. You do not need to file Form 8832 first. A timely Form 2553 from an LLC counts as a deemed election to be classified as a corporation, so Form 2553 alone handles both steps.⁶ This trips up business owners and the occasional preparer who assume two filings are required.

The form asks for your LLC’s legal name, EIN, formation date, state of organization, and the tax year you want the election to take effect. Even as the only owner, you complete the shareholder section with your name, address, Social Security number, and 100% ownership.⁷

The Deadline

Form 2553 must be filed no later than two months and 15 days after the start of the tax year you want it to apply to, or any time during the preceding tax year.⁸ For a calendar-year LLC, that’s March 15. File after that and the election applies to the following year unless you qualify for late relief.

Late Election Relief

If you missed the deadline, Revenue Procedure 2013-30 lets you get retroactive S corp status without a private letter ruling if you meet all of these conditions: the entity intended to be an S corporation as of the desired effective date, the only reason it didn’t qualify was the missed filing, you and the business have reported income consistently with S corp status for the intended year and every year since, and you file the late Form 2553 within three years and 75 days of the desired effective date.⁹

Write “FILED PURSUANT TO REV. PROC. 2013-30” across the top of the late Form 2553 and attach a reasonable cause statement. The IRS tends to accept explanations like reliance on a tax professional who failed to file, or not knowing the election existed. Beyond the three-year-and-75-day window, the only path is a private letter ruling under Section 1362(b)(5), which is slower and more expensive.⁸

The Reasonable Salary Problem

This is where S corp elections go wrong. Any shareholder who performs services for the business must receive reasonable compensation as W-2 wages before taking distributions.² A $10,000 salary paired with a $150,000 distribution won’t survive scrutiny. Courts have repeatedly held that officer-shareholders providing more than minor services owe employment taxes on appropriate compensation, even when they tried to rebrand wages as distributions or dividends.

The IRS weighs factors like your training and experience, the duties you perform and the time you devote to them, what comparable businesses pay for similar work, the degree to which the business’s income depends on your personal services, and the ratio of distributions to salary.¹⁰ Comparable pay data is the strongest benchmark.

Setting the salary wrong in either direction hurts. Too low, and the IRS can reclassify distributions as wages, with back payroll taxes, penalties, and interest piled on. Too high, and the savings that justified the election disappear.

What You Take On After Electing

Running an S corp means running a payroll operation, even if you’re the only person on it.

Payroll Filings

Because you’re an employee of your own S corp, the business withholds federal income tax, Social Security, and Medicare from your paychecks and pays the employer match. That means Form 941 quarterly (or Form 944 annually if your payroll tax liability runs $1,000 or less), Form 940 for federal unemployment tax annually, and a W-2 to yourself by January 31.¹¹ Employment tax deposits must be made electronically.

Form 1120-S

The S corp files its own return on Form 1120-S each year. For calendar-year filers, the 2026 return is due March 16, 2026 (March 15 falls on a Sunday).¹² The S corp also issues you a Schedule K-1 with your share of the income and deductions, which you then report on your personal return.¹³ A missing or late Schedule K-1 can trigger a $340 penalty per form.

Estimated Taxes

Your S corp salary has taxes withheld, but your distributions don’t. If withholding doesn’t cover your full liability, you’ll owe quarterly estimated payments on the personal side, due April 15, June 15, September 15, and January 15, 2027 for the 2026 tax year.¹⁴ One practical workaround: bump up your salary withholding to cover the tax on distributions. Wage withholding is treated as paid evenly throughout the year regardless of when it actually came out.

Health Insurance for the Owner

As a greater-than-2% shareholder (which you are at 100%), health insurance premiums the S corp pays on your behalf get special handling. The corporation deducts them, and they’re added to your W-2 as wages. The payoff: they’re not subject to Social Security or Medicare tax, and you take an above-the-line deduction for the full amount on your personal return.¹⁰

The S corp has to either pay the premiums directly or reimburse you, and the premiums have to appear on your W-2. If you or your spouse is eligible for a subsidized plan through another employer, the above-the-line deduction disappears. A greater-than-2% shareholder also cannot participate in a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).¹⁰

State Treatment Doesn’t Always Follow

Federal S corp status doesn’t automatically carry over at the state level. Louisiana, New Hampshire, Tennessee, Texas, and the District of Columbia don’t recognize the election and tax S corps like C corporations. New York and New Jersey require a separate state election. Most states follow the federal election but may charge a minimum franchise tax or entity fee regardless of profit, running from nothing in some states to $800 or more in others.

Check your state’s rules before filing. An election that saves $8,000 in federal self-employment tax but triggers a $1,600 state entity tax in a jurisdiction that doesn’t honor pass-through treatment is a smaller win than it looks.

Backing Out

If the S corp election stops making sense, you can revoke it. Send a written statement to the IRS service center where you file the 1120-S, including the corporation’s name, EIN, and the effective date of revocation, signed by shareholders owning more than 50% of the stock.¹⁵ For a single member LLC, that’s just you.

To make the revocation effective on the first day of the current tax year, file by the 15th day of the third month, which is March 15 for calendar-year filers. File later and it takes effect the following tax year unless you specify a mid-year date. Once revoked, the business generally cannot re-elect S corp status for five years without IRS consent.⁸

Before you file Form 2553, run the numbers against your actual income, expenses, and realistic salary with a tax professional. The math is different for every business, and the five-year lockout on re-electing after revocation means getting it right the first time saves you from a long detour.

1
Internal Revenue Service. Publication 15-A, Employers Supplemental Tax Guide (2026)
2
Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers
3
Social Security Administration. Contribution and Benefit Base
4
Internal Revenue Service. S Corporations
5
Internal Revenue Service. Qualified Business Income Deduction
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Internal Revenue Service. Entities 3
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Internal Revenue Service. Form 2553, Election by a Small Business Corporation
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Office of the Law Revision Counsel. 26 USC 1362 – Election; Revocation; Termination
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Internal Revenue Service. Revenue Procedure 2013-30
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Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues
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Internal Revenue Service. Forms 940, 941, 944 and 1040 (Sch H) Employment Taxes
12
Internal Revenue Service. Instructions for Form 1120-S
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Internal Revenue Service. About Form 1120-S, US Income Tax Return for an S Corporation
14
Internal Revenue Service. 2026 Form 1040-ES
15
Internal Revenue Service. Revoking a Subchapter S Election