S Corporation Basics: Who Qualifies and How Form 2553 Works, per the IRS
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How we wrote this: A plain-English summary of the IRS page on S corporations, with the SBA's business structure guide, checked October 29, 2026. This is general information, not tax advice; ask a tax professional about your situation.
What an S corporation is
S corporations are corporations that elect to pass income, losses, deductions and credits through to shareholders for federal tax purposes. Shareholders report them on their personal returns and pay tax at individual rates. This avoids double taxation, though the S corp itself can still owe tax on certain built-in gains and passive income.
Who qualifies
To qualify, the corporation must:
- be a domestic corporation;
- have only allowable shareholders: individuals, certain trusts and estates, and no partnerships, corporations or non-resident aliens;
- have no more than 100 shareholders;
- have only one class of stock;
- not be an ineligible corporation, such as certain financial institutions, insurance companies and DISCs.
How to elect
File Form 2553, Election by a Small Business Corporation, signed by all the shareholders. The Form 2553 instructions explain the details and where to file. The SBA notes this IRS filing is separate from registering with your state. Some states tax S corps differently, and a few treat them as C corps.
Ongoing filings
- The corporation: files Form 1120-S each year, and handles employment taxes (Social Security, Medicare and withholding) if it has employees, including Form 941.
- Shareholders: report their share on Form 1040 or 1040-SR with Schedule E, using the Schedule K-1.
- E-filing: S corps that must file 10 or more returns in a calendar year must e-file Forms 1120-S, effective for returns due on or after Jan. 1, 2024.
Related: choosing a business structure, self-employment tax, QBI deduction.