To start an S corp in New York, you first form a legal business entity — usually a corporation or an LLC — with the New York Department of State, then file two separate tax elections: Form 2553 with the IRS for federal S corporation treatment, and Form CT-6 with the New York Department of Taxation and Finance for state S corporation treatment. S corporation status is a tax classification under Subchapter S of the Internal Revenue Code, not a distinct business structure, and New York does not automatically honor your federal election. Both filings have the same tight deadline, and missing either one pushes S treatment to the following tax year.
Confirm Federal Eligibility First
Before spending money on filings, check that the business can actually qualify. Under the Internal Revenue Code, an S corporation must be a domestic corporation (or an LLC that elects corporate tax treatment) and must meet strict shareholder and stock rules:1Office of the Law Revision Counsel. 26 USC 1361 – S Corporation Defined
- No more than 100 shareholders, and only individuals, estates, and certain qualifying trusts can hold stock. Partnerships, other corporations, and nonresident aliens are prohibited.
- Only one class of stock. Differences in voting rights among common shares are allowed, but every share must carry the same rights to distributions and liquidation proceeds.
Violating any of these rules terminates S status effective on the date of the violation, and reinstatement typically requires a five-year wait unless the IRS grants a waiver. If a planned investor is a nonresident alien or another corporation, S status is off the table.
Form the Business Entity With the Department of State
The S election sits on top of a legal entity, so that entity has to exist first. Most people form either a business corporation or an LLC that will later elect corporate tax treatment.
Corporation Route
To form a corporation, file a Certificate of Incorporation with the New York Department of State. Under Business Corporation Law section 402, the certificate must state the corporation’s name, purpose, county of office, and details about authorized shares, and must designate the Secretary of State as agent for service of process with a forwarding mailing address.2New York State Senate. New York Business Corporation Law 402 – Certificate of Incorporation, Contents The filing fee is $125.3New York Department of State. Certificate of Incorporation for Domestic Business Corporation
LLC Route
To form an LLC, file Articles of Organization with the Department of State. The filing fee is $200.4New York Department of State. Articles of Organization for Domestic Limited Liability Company New York also requires the LLC to adopt a written operating agreement covering its operations and the rights and responsibilities of its members.5New York State Senate. New York Limited Liability Company Law 417 – Operating Agreement An LLC that wants S corporation tax treatment must first elect to be treated as a corporation for federal tax purposes using IRS Form 8832, and then file the S election on Form 2553.
Get an EIN
Once the Department of State accepts your filing, apply for an Employer Identification Number from the IRS. You can apply online at irs.gov or submit Form SS-4 by mail or fax. The IRS recommends forming the entity with the state before applying, because applying first can delay the process.6Internal Revenue Service. Get an Employer Identification Number
Handle the LLC Publication Requirement
If you chose the LLC route, there is an extra step corporations skip entirely. Within 120 days of the Articles of Organization taking effect, the LLC must publish a notice of formation in two newspapers — one daily, one weekly — for six consecutive weeks. Both are designated by the county clerk in the county where the LLC’s office is located.7New York Department of State. Certificate of Publication for Domestic Limited Liability Company
After the six weeks, each newspaper provides an affidavit of publication. File those affidavits with a Certificate of Publication and a $50 filing fee with the Department of State.7New York Department of State. Certificate of Publication for Domestic Limited Liability Company Publication costs vary by county; Manhattan is generally the most expensive.
Missing the 120-day deadline suspends the LLC’s authority to carry on business in New York. Contracts remain enforceable and the LLC can still be sued, but it cannot bring its own lawsuits or initiate legal proceedings until publication is completed.8New York State Senate. New York Limited Liability Company Law 206 Corporations formed under the Business Corporation Law are exempt from this requirement.
File the Federal S Election on Form 2553
With the entity formed and an EIN in hand, file IRS Form 2553 to elect S corporation status. The deadline is firm: no later than the 15th day of the third month of the tax year the election is to take effect, or at any time during the preceding tax year.9Office of the Law Revision Counsel. 26 USC 1362 – Election, Revocation, Termination For a calendar-year business, that means March 15.10Internal Revenue Service. Instructions for Form 2553
Every person who held stock at any time from the election’s effective date through the day the form is filed must sign a consent, either on the form itself or as a separate consent statement.11Internal Revenue Service. Instructions for Form 2553 If one shareholder does not consent, the election will not take effect for that year. Miss the deadline entirely and the entity is taxed as a C corporation for the full year, with the election pushed to the following year.
Late relief is available under Revenue Procedure 2013-30. A corporation that intended to be an S corporation but missed the filing deadline can request relief if it files within three years and 75 days of the intended effective date, shows reasonable cause for the delay, and confirms that all shareholders have reported their income consistently with S corporation status on affected returns.12Internal Revenue Service. Rev. Proc. 2013-30 The IRS expects diligence once the mistake is discovered. If the corporation has always filed as an S corporation and simply never submitted Form 2553, the three-year-and-75-day limit does not apply, but the other conditions still do.
File the New York State S Election on Form CT-6
Federal S corporation approval does not carry over. New York requires a separate election, filed with the Department of Taxation and Finance on Form CT-6. Without it, New York taxes the business as a C corporation at the state level, which defeats most of the reason to elect S status.13New York State Department of Taxation and Finance. Instructions for Form CT-6 Election by a Federal S Corporation to be Treated as a New York S Corporation
The deadline mirrors the federal one: the 15th day of the third month of the tax year, or any time during the preceding tax year. For calendar-year corporations, March 15. All shareholders must consent. If the corporation did not qualify as a federal S corporation on any day before the election, or if a pre-election shareholder did not consent, the election takes effect the following year.
If you miss the CT-6 deadline but the IRS retroactively validates your federal S election under IRC section 1362(f), New York can retroactively validate the state election as well. You file Form CT-6 with an attachment explaining the circumstances, and all shareholders must have reported income consistently with S corporation status for the affected years.13New York State Department of Taxation and Finance. Instructions for Form CT-6 Election by a Federal S Corporation to be Treated as a New York S Corporation
Know What You Owe Once You’re an S Corporation
Even though S corporation income passes through to shareholders, New York imposes an entity-level fixed dollar minimum (FDM) franchise tax each year, based on the corporation’s New York receipts. The amounts start at $25 for corporations with $100,000 or less in New York receipts and rise to $4,500 for those over $25 million. Qualified New York manufacturers and qualified emerging technology companies pay reduced rates at each bracket.14New York State Department of Taxation and Finance. Instructions for Form CT-3-S New York S Corporation Franchise Tax Return The FDM is reported and paid annually on Form CT-3-S, the New York S Corporation Franchise Tax Return.15New York State Senate. New York Tax Law 210 Shareholders then report their share of income on their personal returns — Form IT-201 for residents, Form IT-203 for nonresidents or part-year residents.
If You Operate in New York City, Read This
New York City does not recognize S corporation status. The city has no S election and does not honor the federal or state elections. S corporations doing business in the five boroughs are subject to the city’s General Corporation Tax (GCT), which applies at the entity level as if the business were a C corporation.16NYC Department of Finance. Business General Corporation Tax – GCT The result is entity-level tax at the city level on top of the state FDM and the personal income tax shareholders already pay on pass-through earnings. If your operations are primarily in NYC, run the numbers before committing to the S election.
Consider the Pass-Through Entity Tax
New York offers an elective Pass-Through Entity Tax (PTET) that can help S corporation shareholders affected by the federal $10,000 cap on state and local tax deductions. When a qualifying S corporation opts in, the entity pays state income tax directly and each shareholder receives a corresponding credit on their personal return. The state tax becomes a deduction at the entity level, bypassing the individual SALT cap.17New York State Department of Taxation and Finance. Pass-Through Entity Tax (PTET)
The election is made online each year by March 15 and becomes irrevocable once the first estimated payment is due. Only an authorized officer, manager, or shareholder can make it. An S corporation electing to file as a “resident S corporation” must certify that all shareholders are New York residents.17New York State Department of Taxation and Finance. Pass-Through Entity Tax (PTET) Whether the PTET helps depends on each shareholder’s full tax picture, so it is worth reviewing annually with a tax advisor.
Set Reasonable Compensation Before Taking Distributions
The core tax appeal of an S corporation is splitting income between salary (subject to payroll taxes) and distributions (not subject to payroll taxes). The IRS requires any shareholder performing substantial services to receive reasonable compensation before taking distributions.18Internal Revenue Service. S Corporations
“Reasonable” means what you would pay someone else to do the same work. The IRS looks at training and experience, duties, time commitment, and comparable market pay. Taking zero salary while pulling large distributions is the single biggest audit trigger for S corporation owners, and heavy distributions paired with a token salary also draw scrutiny. No fixed ratio guarantees safety; the compensation has to be defensible as a genuine market-rate wage for the work performed.
Stay in Good Standing
Every corporation and LLC must file a Biennial Statement with the Department of State every two years, during the calendar month the entity was originally formed. The fee is $9, filed online through the DOS e-Statement Filing System.19New York Department of State. Biennial Statements for Business Corporations and Limited Liability Companies Missing it will not dissolve the entity, but it shows as past due in state records and can complicate financing, real estate transactions, and any dealing that requires a certificate of good standing.
If the business sells taxable goods or services, register for a Certificate of Authority with the Department of Taxation and Finance at least 20 days before making any taxable sales. You cannot legally collect sales tax without it.20New York State Department of Taxation and Finance. How to Register for New York State Sales Tax Businesses with employees must also register for state payroll taxes, including unemployment and disability insurance.