Key Takeaways

  • To register an S corp in NY, you must first form a New York C corporation and then elect S corp status at both the federal and state levels.
  • S corporations in New York offer benefits such as pass-through taxation and self-employment tax savings, but come with specific ownership restrictions and formalities.
  • NYC does not recognize S corporation tax status; entities may still be subject to the city’s corporate tax.
  • Filing Form CT-6 is necessary to elect S corp status in New York State, in addition to the federal Form 2553.
  • Ongoing compliance obligations include biennial statements, payroll filings, and maintaining corporate formalities.
  • A registered agent with a physical New York address is required.
  • S corps must adhere to New York-specific employer requirements, including worker’s compensation and disability insurance.

Like any other form of business, S corporations are allowed in the state of New York. S corporations are similar to regular corporations except for their special tax treatment with the federal or New York state tax authorities. Apart from that, other features of an S corporation, such as formation, ownership, contracting, and other business activities, are similar to that of any corporation.

S Corporation: Pros and Cons

All business forms have their advantages and disadvantages, and it is up to the business owners to decide how they will structure their business for optimum profit. Here are advantages to having an S corporation.

  • With regard to formation, it is cheaper to form an S corporation than to form an LLC.
  • S corporation structures are familiar to more people.
  • Shareholders can save money from self-employment taxes.

On the other hand, there are drawbacks that business owners might consider:

  • Number and kind of allowed shareholders are limited.
  • They are less flexible than LLCs, and special allocations are not permitted.
  • They limit the loss deductions at the shareholder level.
  • For the preservation of limited liability, the S corporation is required to have ongoing formalities.
  • New York City doesn't recognize the S corporation status, which means the corporation needs to settle taxes on the corporate level.

How to form an S Corporation in NY?

Before the nomination of an S corporation, a business should be formed as a regular corporation. Certificate of Incorporation is needed by the New York Department of State when forming a corporation. After the formation of the corporation in New York, you need to apply for S corporation with the state and federal tax departments. Here are few considerations when forming an S corporation.

  • S corporations are limited to a maximum of 100 shareholders.
  • Shareholders must be US Citizens or residents.
  • Forming a corporation in New York costs $195, excluding legal fees.

Step-by-Step Process to Register an S Corp in NY

To register an S corp in NY, follow these detailed steps:

  1. Choose a Business Name
    Ensure your desired business name is distinguishable from others registered in New York. Use the New York Corporation & Business Entity Database for verification.
  2. Designate a Registered Agent
    Appoint a registered agent with a physical address in New York (P.O. Boxes are not acceptable). The agent receives legal and tax documents on behalf of your business.
  3. File the Certificate of Incorporation
    Submit Form DOS 1239 (Certificate of Incorporation) to the New York Department of State. The $125 filing fee is required.
  4. Create Corporate Bylaws and Hold Organizational Meeting
    Draft bylaws that outline how the S corp will be governed. Hold an initial meeting with shareholders and directors to adopt bylaws and issue stock.
  5. Obtain an EIN from the IRS
    Apply for an Employer Identification Number (EIN) using IRS Form SS-4. This is essential for tax filing and opening a business bank account.
  6. Elect Federal S Corp Status
    File Form 2553 with the IRS within 75 days of incorporation or within the first 75 days of the tax year. All shareholders must sign the form.
  7. File Form CT-6 for NY State S Corp Election
    New York State requires a separate S corp election via Form CT-6. This must also be filed within 75 days of the beginning of the tax year when S corp status should start.
  8. Register for State and Local Taxes
    Depending on your business activities, register with the NYS Department of Taxation and Finance for sales tax, withholding tax, or unemployment insurance.
  9. Comply with Employment Laws
    If you hire employees, register with the New York Department of Labor and secure worker’s compensation and disability insurance.
  10. File Biennial Statements
    Every two years, submit a Biennial Statement to the Department of State. The current filing fee is $9.

Who are the Owners of an S Corporation?

Individuals who own a corporation are called shareholders. Shareholders receive share certificates from the corporation for something of value like cash, services, or properties that they provide to the business.

How long does it take to form an S Corporation?

After settling the formation fee of $195 and completing the requirements, you can legalize your corporation within 24 hours. However, necessary documents to prove the existence of your company usually arrive in the mail after a few business days. These documents will aid you in setting up a bank account and other subsequent business requirements.

How Much Does It Cost to Register an S Corp in NY?

The typical costs to register an S corp in NY include:

  • Certificate of Incorporation Filing Fee: $125
  • S Corporation Election (IRS Form 2553): No fee
  • NY S Election (Form CT-6): No fee
  • Biennial Statement Filing Fee: $9
  • Registered Agent Services (if applicable): ~$100–$300 annually
  • Legal or Filing Assistance (optional): Varies widely, starting at ~$150

Other potential costs may include name reservation fees, business license fees, and legal drafting services.

Does the S Corporation pay Taxes?

For regular corporations, shareholders and the business are separate entities. The corporation settles taxes on the corporate level, while shareholders receive dividends from the corporation, which they include on their personal taxable income. This is considered double taxation. One of the advantages of electing an S corporation is to avoid double taxation. The corporation's income and losses are passed, through distributions of dividends, to the shareholders who individually file their personal tax. For this reason, an S corporation is called a pass-through entity.

This happens in most states, with the exception of New York State and New York City. New York City doesn't recognize the concept of S corporation. In addition, an S corporation in New York with income coming from New York City resources will be taxed as a corporation and needs to settle the New York City's General Corporation Tax.

State and Local Taxation for S Corporations in NY

While S corporations are treated as pass-through entities federally and by New York State, they face unique taxation rules in NYC:

  • New York State: Recognizes S corp status and does not impose corporate income tax on qualifying S corps. Instead, shareholders report their share of income on personal tax returns.
  • New York City: Does not recognize federal or state S corp status. NYC S corporations are subject to the General Corporation Tax (GCT).

S corps with NYC income may need to file Form NYC-3L annually and pay taxes at a rate of 8.85% on net income.

Do Shareholders Pay Self-Employment Taxes on Income From the S Corporation?

Shareholders are not required to pay self-employment taxes. However, if they work for the S corporation, they need to declare a reasonable salary, as they are considered employees of the S corporation. To comply with federal and state laws, the S corporation is required to withhold federal and state taxes from their salaries, settle unemployment insurance and other shares of Social Security and Medicare payments.

Can a Shareholder Be an Employee of an S Corporation?

Shareholders can be employees of an S corporation, especially if they have critical involvement in the day-to-day operations of the business. With that, the corporation should include the shareholder on the payroll and settle the necessary taxes and insurances involved.

Ongoing Compliance for S Corporations in NY

Once you register an S corp in NY, it’s essential to stay compliant with state and federal requirements:

  • File Biennial Statement with the NY Department of State every two years.
  • Maintain corporate records, including meeting minutes, bylaws, and stock ledgers.
  • Report and pay payroll taxes for any employees, including shareholder-employees.
  • Issue W-2 forms for salaries and Schedule K-1s for shareholder distributions.
  • Renew business licenses and permits depending on your industry.
  • Keep up with New York Labor Law, including mandatory disability insurance and paid family leave coverage.

Frequently Asked Questions

  1. Do I need a lawyer to register an S corp in NY?
    While not required, legal help ensures your incorporation documents, bylaws, and tax elections are completed accurately. You can find qualified business attorneys through UpCounsel.
  2. Can an LLC be taxed as an S corporation in New York?
    Yes, a New York LLC can elect to be taxed as an S corp by filing IRS Form 2553 and New York Form CT-6, provided it meets eligibility criteria.
  3. What happens if I miss the 75-day S corp election deadline?
    You may have to wait until the next tax year or file for late election relief under IRS Revenue Procedure 2013-30.
  4. Are online businesses eligible to form an S corp in NY?
    Yes, online businesses can register as S corps in NY as long as they follow incorporation steps and meet eligibility requirements.
  5. What if my business moves out of New York after S corp formation?
    You’ll need to dissolve or convert your New York S corp and form a new entity in your new state, or register as a foreign entity if continuing to operate in NY.

If you need help with information in forming an S corporation in NYC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.