Louisiana S corp taxes work differently than in most other states because Louisiana does not recognize S corporation status for state income tax purposes. Your corporation files a Louisiana corporation income tax return and pays a flat 5.5% state tax on Louisiana taxable income, with an exclusion available for the share of income attributable to Louisiana-resident individual shareholders. Federal pass-through treatment is unaffected: the corporation still files Form 1120-S, income still flows to shareholders on Schedule K-1, and shareholders still report it on their personal federal returns.
The Louisiana Entity-Level Tax
For tax years beginning on or after January 1, 2025, Louisiana imposes a flat 5.5% corporate income tax on all Louisiana taxable income. The old graduated brackets at 3.5%, 5.5%, and 7.5% have been repealed. S corporations use Form CIFT-620, the same return C corporations file.
The practical effect is a layer of state tax that S corporations in most other states never see. Louisiana-source income is taxed at the entity level before shareholders get their allocations, which is the opposite of how federal S corporation treatment works. Planning around this exclusion is where most of the state-level tax work happens.
The Resident-Shareholder Exclusion
To keep resident owners from being taxed twice on the same dollar, Louisiana lets an S corporation exclude the portion of its income that corresponds to shares held by Louisiana-resident individual shareholders. Those shareholders then report the excluded income on their personal Louisiana returns.
The exclusion runs as a straight ratio: shares owned by Louisiana-resident individuals divided by total shares outstanding. If every shareholder is a Louisiana resident, 100% of income drops off the corporate return and 100% lands on the personal returns. If some owners live out of state, the corporation excludes only the resident portion and pays the 5.5% tax on the rest at the entity level.
Nonresident Shareholders
Nonresident shareholders have two paths. They can file a Louisiana nonresident individual return reporting their share of the corporation’s income, or they can let the corporation pay the 5.5% tax on their behalf at the entity level. When the corporation pays for nonresidents, it cannot use the S corporation exclusion to offset that portion of income on the corporate return.
Franchise Tax
Louisiana’s corporate franchise tax, historically imposed on capital employed in the state, has been repealed for franchise tax periods beginning on or after January 1, 2026. S corporations no longer owe it.
Federal Filings Still Apply
At the federal level, the S corporation itself pays no income tax. Income, losses, deductions, and credits flow to shareholders in proportion to ownership. But the corporation still has filings to make, and shareholders still have money to send in during the year.
Form 1120-S and Schedule K-1
Every S corporation files Form 1120-S annually with the IRS. For calendar-year filers, the deadline is March 15. Form 7004 grants an automatic six-month extension to September 15, but the extension only covers filing, not payment. Each shareholder receives a Schedule K-1 showing their share of income and deductions to carry onto their personal federal return.
Shareholder Estimated Taxes
Because income passes through, the IRS expects shareholders to pay quarterly estimated taxes if they will owe $1,000 or more when they file. The quarterly due dates are April 15, June 15, September 15, and January 15 of the following year. Underpayment triggers interest and potential penalties, so shareholders receiving sizable K-1 allocations need to plan for these payments across the year rather than settle up at filing.
Employment Taxes
S corporations that pay wages to shareholder-employees must withhold and remit federal employment taxes: Social Security and Medicare (FICA) and federal unemployment (FUTA). Distributions to shareholders are not subject to employment taxes, and that gap is the main payroll tax reason people pick the S corporation structure in the first place. The gap only holds if the shareholder-employee is paid a reasonable salary first.
Reasonable Salary for Shareholder-Employees
Any shareholder who performs services for the business must be paid a salary comparable to what other employers would pay for similar work. Paying a token salary and taking the rest as distributions to escape FICA is one of the most heavily audited areas for S corporations.
Factors the IRS weighs include the shareholder’s training and experience, duties and responsibilities, time and effort devoted to the business, what comparable businesses pay for similar services, the corporation’s dividend history, and payments to non-shareholder employees doing similar work.
If the IRS decides a salary is unreasonably low, it reclassifies distributions as wages. The cost is not just the back employment taxes. The corporation faces failure-to-file penalties of up to 25% of the taxes due for missing employment tax returns, failure-to-deposit penalties of up to 10%, a potential 20% negligence penalty, and interest on the whole underpayment. The penalties stack.
There is a second reason not to set the salary too low. The Section 199A qualified business income deduction, made permanent for tax years beginning after December 31, 2025 by the One Big Beautiful Bill Act signed in July 2025, allows shareholders to deduct up to 20% of qualified business income on their personal federal returns. The deduction is capped at the lesser of 20% of QBI or the greater of 50% of the W-2 wages the business pays or 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property. An S corporation paying very low wages can inadvertently cap its shareholders’ QBI deductions and give back some of the payroll tax savings. Getting the salary right means balancing FICA savings against the QBI wage limit.
Keeping the S Election in Place
S corporation status is not permanent. It can end by choice or by accident, and either way the tax consequences change from that point forward.
Voluntary Revocation
Shareholders holding more than half of the stock can revoke the S election at any time. A revocation filed on or before the 15th day of the third month of the tax year takes effect on the first day of that year. Filed after that date, it takes effect on the first day of the next tax year, unless a future effective date is specified.
Involuntary Termination
The election terminates automatically if the corporation stops qualifying as a small business corporation. Common triggers are admitting a 101st shareholder, issuing a second class of stock, or letting an ineligible owner such as a partnership or non-resident alien acquire shares. Termination is effective on the date of the disqualifying event. A separate trigger: if the corporation has accumulated earnings and profits from prior C corporation years and passive investment income exceeds 25% of gross receipts for three consecutive tax years, the election terminates at the start of the following year.
Corporate Formalities and the Annual Report
Louisiana requires corporations to hold annual meetings, keep corporate minutes, and maintain separate financial records. Commingling personal and business funds or treating the corporation as an extension of the owner can let a court disregard the entity and reach shareholders personally.
Every domestic corporation must also file an annual report with the Louisiana Secretary of State listing the corporation’s name, registered office and agent, principal office address, and the names and addresses of directors and principal officers. The report is due within 30 days of the corporation’s renewal date. Missing it can lead to administrative dissolution.