Key Takeaways

  • A New York S Corp allows pass-through taxation at both federal and state levels, avoiding double taxation while offering corporate liability protection.
  • To qualify, a corporation must first file for federal S corporation election with the IRS using Form 2553, then file Form CT-6 to elect New York S corporation status.
  • Shareholder eligibility and strict filing timelines are crucial—missing deadlines can delay or invalidate your New York S corporation election.
  • S corporations in New York must also meet ongoing compliance obligations, including biennial statements, payroll tax reporting, and corporate franchise tax filings.
  • Businesses benefit from potential tax savings, especially when owners pay themselves a reasonable salary and take remaining profits as distributions.

A business achieves New York S corporation election by going through the election process with the state as well as the federal S corp election process. Federal approval of an S corporation does not guarantee the ability to operate as an S corporation in the state of New York. To officially be designated as an S corporation in New York, your business will be required to file a Form CT-6, which is the Election by a Federal S Corporation to be Treated as a New York S Corporation.

Along with the form, you will need to include your filing fee as well as your federal approval letter. After obtaining approval from the New York State Tax Department, the business will then need to file a Form CT-3-S to begin operating as an S corporation in the state of New York.

What Is an S Corporation?

An S corporation is a special tax treatment that a business may elect if they meet the eligibility requirements set forth by the state. An S corporation is a hybrid tax entity that combines the structures and benefits of C corporations and partnerships.

Benefits of a New York S Corp

A New York S Corp offers significant tax advantages and liability protection to small business owners. Like federal S corporations, it enables pass-through taxation, meaning profits and losses flow directly to shareholders without corporate-level tax. This avoids the double taxation imposed on traditional C corporations.

Other benefits of a New York S Corp include:

  • Liability Protection: Shareholders’ personal assets are shielded from the corporation’s debts and obligations.
  • Tax Savings on Self-Employment Taxes: Business owners can classify part of their income as distributions, which are not subject to self-employment tax (as long as a reasonable salary is paid).
  • Simplified Ownership Transfers: Shares can typically be transferred without disrupting business operations or triggering dissolution.
  • Enhanced Credibility: Forming an S Corp can help build trust with banks, investors, and clients.

However, New York imposes additional requirements beyond the federal S corporation rules. Even if your business is approved by the IRS, you must file Form CT-6 to be recognized as an S Corp by the New York State Department of Taxation and Finance.

How to Form a Corporation in New York

There are multiple steps that must be completed before a business will be considered to be a corporation in the state of New York. The steps required to become a corporation in New York include:

  1. Choose your corporation's name. Your name will be required to include indicators that it is a corporation, such as "Incorporated," or "Limited." The name you choose must be recognizably different than any other company name registered in the state. You can search for name availability and reserve your name at the New York Department of State Division of Corporationswebpage.
  2. Create and file your company's Certificate of Incorporation. You must create and file this document with the New York Secretary of State, and it must include your company name, the country and address of the office location, the number of shares it is authorized to distribute, and the name and address of the incorporator.
  3. Appoint your corporation's registered agent. In the state of New York, you must name a registered agent who will receive legal paperwork on behalf of your company. The agent must be allowed to do business in the state of New York and must maintain a physical address.
  4. Create a corporate record book. You will want to set up a filing system to maintain all of your important corporate records in one place, such as minutes of meetings and stock certificate stubs.
  5. Create your corporate bylaws.Your bylaws will be the internal document detailing the rules your company will abide by. Though these are not required by the state, they are normally used to establish operating procedures and show the corporation's legitimacy.
  6. Appoint your board of directors.The incorporator of the business will need to appoint an initial board of directors who will serve until the first annual board meeting, where directors will be elected. Once assigned, the incorporator will have to fill out an "incorporator's statement" that will list the names and addresses of all of the directors.
  7. Hold a board of directors meeting. You will need to hold a first board meeting to appoint officers, adopt your bylaws, select your bank, authorize the issuing of stock, set up the corporate fiscal year, adopt a stock certificate, and create a corporate seal. It is essential to record the minutes of these meetings.
  8. Issue stock to your shareholders.Even though you are not required to issue physical stock certificates in the state, this is often practiced by small corporations. You will need to enter the stockholder's name and contact information in the stock transfer ledger.
  9. Set up for compliance with the New York Biennial Statement Requirements.Every other year, your business will be required to file this statement along with a filing fee.
  10. Obtain an Employer Identification Number.You will need to obtain an EIN from the IRS to serve as your business identification.
  11. Make your S corporation election, if desired. If your shareholders vote to have your company designated as an S corporation with the IRS, you will need to complete and file From 2553, Election by a Small Business Corporation.
  12. Set up for New York state taxes.In New York, corporations are required to file franchise tax reports and pay franchise tax fees annually to the state.

Steps to Elect S Corporation Status in New York

Once your corporation is formed, you must take specific steps to become a New York S corporation:

  1. File for Federal S Corp Election:
    Submit IRS Form 2553 (Election by a Small Business Corporation) within two months and 15 days of forming your corporation or starting business activity. All shareholders must consent in writing.
  2. File for New York State S Corp Election:
    After receiving IRS approval, complete and file Form CT-6 (Election by a Federal S Corporation to be Treated as a New York S Corporation) with the New York State Department of Taxation and Finance.
    • You can file online using the NYS Business Online Services portal or by mail.
    • The form must be filed by March 15 of the tax year for which you wish the election to take effect.
  3. Wait for State Approval:
    The Department of Taxation and Finance will send written confirmation once your election is approved. Only then can your corporation be taxed as an S corporation in New York.
  4. File Annual S Corporation Return:
    Once approved, you’ll need to file Form CT-3-S (New York S Corporation Franchise Tax Return) each year. This return reports income, deductions, and credits for the corporation, even though the tax is generally passed through to shareholders

Eligibility Requirements for a New York S Corp

Not every corporation qualifies for S corporation status. To be eligible, a New York S corp must meet these federal and state requirements:

  • Be a domestic corporation organized in the United States.
  • Have no more than 100 shareholders.
  • Issue only one class of stock.
  • Have shareholders who are U.S. citizens or residents—partnerships, corporations, and nonresident aliens generally cannot be shareholders.
  • Receive shareholder consent for both the federal and New York elections.

In addition, New York requires that the corporation be subject to the Article 9-A General Business Corporation Franchise Tax. Certain financial institutions or insurance companies may not qualify for S corporation treatment.

If these conditions are not met, or if the election is revoked, the corporation will be taxed as a C corporation for both federal and state purposes until it requalifies and reelects S corporation status.

New York S Corp Taxation and Compliance Obligations

While New York S corporations avoid double taxation, they are still subject to certain state-level taxes and filing requirements.

Key compliance duties include:

  • Franchise Tax: Even though income passes through to shareholders, New York imposes a fixed-dollar minimum tax based on the corporation’s gross receipts.
  • Form CT-3-S Filing: Each year, S corporations must file this form with the New York State Department of Taxation and Finance, reporting income, deductions, and shareholder allocations.
  • Payroll and Withholding Taxes: If the S Corp has employees (including shareholder-employees), it must withhold and remit payroll taxes.
  • Biennial Statement: Corporations must file a biennial statement with the New York Department of State and pay the associated fee every two years.
  • City-Level Taxes: New York City does not recognize S corporation status. As a result, corporations conducting business in the city are subject to the General Corporation Tax (GCT) as if they were C corporations.

Failure to comply with these obligations may result in penalties or the revocation of S corporation status.

How to Maintain New York S Corp Status

After election, maintaining S corporation status requires ongoing compliance. To stay in good standing:

  • File all state and federal tax returns on time.
  • Keep an updated corporate record book and document shareholder meetings.
  • Ensure all shareholders remain eligible persons under IRS and New York law.
  • Avoid issuing multiple classes of stock, which can terminate S corporation eligibility.
  • Notify the New York State Department of Taxation and Finance if ownership changes could affect S corporation status.

If a corporation fails to comply, it may be required to reapply by filing a new Form CT-6 and providing updated shareholder consents.

Frequently Asked Questions

1. What is the deadline to file Form CT-6 in New York?

The election must be filed by March 15 of the tax year you want the S corporation status to begin. Late filings may apply to the following year.

2. Can an LLC elect to be treated as a New York S corporation?

Yes, an LLC can first elect to be taxed as a corporation with the IRS (by filing Form 8832), and then file Form 2553 and Form CT-6 to become an S corporation at both levels.

3. Does New York City recognize S corporation status?

No. New York City taxes S corporations as C corporations under the General Corporation Tax.

4. What forms do New York S corporations file each year?

They file Form CT-3-S for state franchise tax and standard federal S corporation returns (Form 1120-S).

5. Can an S corporation lose its election status?

Yes. If eligibility rules are violated—such as having an ineligible shareholder or issuing multiple stock classes—the election can be revoked by the IRS or state.

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