Form 2553 · CBT-100S · Owner payroll
S Corporation Elections and Owner Payroll in New Jersey
An S Corporation election can cut your Social Security and Medicare tax, but only with a reasonable salary, a payroll provider and a second return every year. We run the numbers first, file the election, set up the New Jersey side and set your salary with you.
Monday to Friday 10am to 6pm, weekends 11am to 5pm.
Is it worth it
What the election saves, and what it costs.
As a sole proprietor or single-member LLC, you pay self-employment tax on nearly all of your profit. As an S Corporation, you pay Social Security and Medicare only on the salary you take through payroll. The rest of the profit comes out as distributions, which are not subject to those taxes.
The election also adds costs: a payroll provider, a separate federal and New Jersey business return, and the New Jersey minimum tax. For 2026, Social Security applies to the first $184,500 of wages or self-employment income, and Medicare applies to all of it.
Our calculator runs your own numbers. Read LLC vs. S Corporation in New Jersey for the full comparison.
How the election works
Six steps, in order.
Run the numbers
We compare your tax as a sole proprietor or LLC and as an S Corporation, including New Jersey, before you elect.
File Form 2553
Signed by every shareholder. An LLC that elects S status does not need a separate Form 8832.
Get the CP261
The IRS confirms the election with a CP261 notice, usually within 60 days. Keep it with your permanent records.
Set up New Jersey
The company is registered with the Division of Taxation as a corporation, and each shareholder consents to New Jersey jurisdiction.
Start payroll
Your payroll provider puts you on payroll at the salary we set together.
Plan the first year
Estimated payments, health insurance and distributions all change. We go over them before the first payroll.
Owner payroll
We help set the number. Your payroll provider runs it.
An S Corporation owner who works in the business has to be paid a reasonable salary before taking distributions. The IRS looks at your duties, time spent, experience and what comparable businesses pay. We set a salary you can support in writing, and your payroll provider runs payroll and files the payroll returns. Read our reasonable salary guide.
- YouChoose a payroll providerOr we refer one, with preferred pricing for clients
- WeSet the salaryWith written support for the number
- ProviderRuns payrollForms 941, W-2s, NJ-927 and WR-30
- WeTie payroll to the return
The New Jersey side
What New Jersey requires of an S Corporation.
Automatic S status
For periods beginning on or after December 22, 2022, a federal S Corporation is a New Jersey S Corporation. No separate New Jersey election is needed, but the company must be registered with the Division of Taxation and every shareholder must consent to New Jersey jurisdiction.
Opting out
If every shareholder agrees, the company can be taxed as a C Corporation in New Jersey while keeping federal S status. It rarely makes sense, and we model it first.
The CBT-100S
Each year the S Corporation files New Jersey’s CBT-100S along with the federal Form 1120-S. Both are due March 15 for a calendar-year company and can be extended to September 15.
BAIT
Once profit is large enough, the New Jersey BAIT election can turn state tax into a federal deduction. Read our BAIT guide.
| Less than $100,000 | $375 |
| $100,000 to less than $250,000 | $562.50 |
| $250,000 to less than $500,000 | $750 |
| $500,000 to less than $1,000,000 | $1,125 |
| $1,000,000 or more | $1,500 |
Every year after
What keeps the election working.
Health insurance on the W-2
Premiums the company pays for a more-than-2% shareholder are added to box 1 of the W-2. They are generally not subject to Social Security and Medicare, and you deduct them on your Form 1040. Left off the W-2, the deduction is lost.
Basis and Form 7203
Your basis limits the losses you can deduct and the distributions you can take tax-free. Form 7203 is required when you take a non-dividend distribution, claim a loss, sell stock or receive a loan repayment.
Distributions and salary together
Distributions with no salary invite an IRS adjustment that treats them as wages, with back payroll taxes and penalties.
Retirement contributions
We size the contribution based on your salary. The plan itself is opened through your payroll provider or a firm such as Fidelity or Schwab.
A late or missing election
Filed as an S Corporation without an accepted Form 2553? Rev. Proc. 2013-30 relief is generally available within 3 years and 75 days of the intended effective date.
The year-end check
Before December 31 we compare salary, distributions and estimates to the year’s actual profit, while there is still time to adjust.
Common questions
Questions before you elect.
When is Form 2553 due?
No more than 2 months and 15 days after the start of the tax year the election should take effect, or at any time during the year before. For a calendar-year business that wants S status from January 1, that is March 15.
I missed the deadline. Is it too late?
Often not. Under Rev. Proc. 2013-30, a late election can generally be fixed by filing Form 2553 within 3 years and 75 days of the date it was meant to take effect, if the business filed as an S Corporation and had reasonable cause.
Do I need a separate New Jersey S election?
Not for periods beginning on or after December 22, 2022. New Jersey treats a federal S Corporation as a New Jersey S Corporation, as long as it is registered with the Division of Taxation and every shareholder consents to New Jersey jurisdiction. Shareholders can elect to be taxed as a C Corporation in New Jersey only if all of them consent.
Do you run payroll?
No. Your payroll provider runs it and files the payroll returns. We help set the salary. As a client, we can refer you to a payroll provider with preferred pricing.
Can the S Corporation pay my health insurance?
Yes. For a more-than-2% shareholder, the premiums are added to your W-2 wages for income tax, are generally not subject to Social Security and Medicare, and are then deducted on your Form 1040 as self-employed health insurance.
What is Form 7203?
It shows your stock and loan basis in the S Corporation. You file it with your Form 1040 when you take a non-dividend distribution, claim a loss, sell stock or receive a loan repayment from the company.
Thinking about the S Corporation election?
Bring last year’s return and this year’s profit, and we will run the numbers both ways. The first consultation is free.