Form 2553: Election by a Small Business Corporation (2026)
Elect S-corp status to lower self-employment tax — if your profit is high enough.
Form 2553 elects to have your LLC or corporation taxed as an S-corporation. The payoff: only your reasonable salary is subject to the 15.3% Social Security and Medicare tax, while remaining profit is distributed without that tax — potentially saving thousands for profitable owners. The election is generally due by March 15 for the current tax year. It only makes sense above a certain profit level, given the added payroll and admin cost.
Who files Form 2553
- LLC owners and small corporations electing S-corp taxation.
- Profitable self-employed people whose SE tax is high enough to justify payroll.
- Business owners who can pay themselves a reasonable salary and take the rest as distributions.
How the S-corp saves tax — and the catch
As a sole proprietor, all your net profit is hit with 15.3% self-employment tax. As an S-corp, you pay yourself a 'reasonable salary' (subject to payroll tax) and take the rest as a distribution that avoids that tax. On $120,000 of profit, shifting $70,000 to distributions can save roughly $10,000 in payroll tax.
The catch: you must run payroll, file a separate return (Form 1120-S), and pay a genuinely reasonable salary, so there's cost and complexity. It typically pays off once profit is comfortably into the five figures. Compare your situation with the LLC/S-corp calculator before electing.
Frequently asked questions
When is Form 2553 due?
Generally by March 15 to take effect for the current tax year (2 months and 15 days into the year), though late-election relief is sometimes available.
Does an S-corp election lower my taxes?
It can lower self-employment tax by shifting profit above a reasonable salary into distributions that avoid the 15.3% tax. Income tax on the profit is unchanged.
When is an S-corp worth it?
Usually once net profit is comfortably enough (often $40,000–$80,000+) that the SE-tax savings exceed the cost of payroll and a separate corporate return. Run the numbers first.
Sources & verification
Last reviewed July 12, 2026.