S-Corp Election in Alabama (Form 2553) (2026)

Fact-checked by the LegalGlass editorial team against primary sources · Published Aug 6, 2026 · Last updated Aug 6, 2026

To elect S-corporation status in Alabama, file IRS Form 2553, Election by a Small Business Corporation, with the IRS by the 15th day of the third month of the tax year (March 15 for calendar-year businesses). Alabama recognizes the federal election, so there is no separate state election form. The S-corp then files Form 20S with the Alabama Department of Revenue, income passes through to shareholders, and the entity still owes the annual business privilege tax.

S-Corporation Election Overview in Alabama

An S-corporation is a federal tax classification, not a separate type of business entity. Electing S-corp status for an Alabama business is primarily a federal filing with the Internal Revenue Service (IRS). Alabama conforms to the federal election: once the IRS accepts your Form 2553, your business is treated as an S-corporation for Alabama income tax purposes as well, and you do not file a separate state election form with the Alabama Department of Revenue (ADOR) or the Alabama Secretary of State.

Businesses usually elect S-corp status after first forming as a limited liability company (LLC) in Alabama or an Alabama corporation. The election does not change the underlying entity you registered with the Alabama Secretary of State; it changes how the entity is taxed. The main draw is the potential for federal self-employment tax savings for owner-employees, because profit distributed beyond a reasonable salary is not subject to Social Security and Medicare taxes. If you are still deciding whether the election fits your situation, compare structures in our S-Corp vs. LLC and LLC or S-Corp guides, and review self-employment tax generally before you file.

Federal S-Corp Election with IRS Form 2553

The controlling step is filing IRS Form 2553, Election by a Small Business Corporation, with the IRS. This form is authorized under 26 U.S. Code § 1362 and tells the IRS you want the entity taxed under Subchapter S. To qualify as an S-corporation under 26 U.S. Code § 1361, the business must meet each of these tests:

• Be a domestic corporation, or an LLC that elects to be treated as a corporation.
• Have no more than 100 shareholders.
• Have only one class of stock.
• Have only eligible shareholders - generally U.S. individuals, certain estates, and certain trusts (partnerships, corporations, and nonresident aliens cannot be shareholders).
• Have the consent of every shareholder on Form 2553.

The filing deadline is no later than two months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the tax year before that year. For a calendar-year business, that date is March 15. If you miss it, the IRS may grant late-election relief under Revenue Procedure 2013-30 when you have a reasonable cause and file within the allowed window. Because the entity's identity and taxpayer information appear on the form, obtain a federal Employer Identification Number (EIN) - or use our Alabama EIN guide - before you submit Form 2553. After the election is in effect, the entity files Form 1120-S, the federal S corporation return, and issues a Schedule K-1 to each shareholder.

Alabama State Taxation: Form 20S and Pass-Through Income

Unlike a handful of states that tax S-corporations at the entity level, Alabama largely respects the federal pass-through treatment for income tax. An Alabama S-corporation files Form 20S, the Alabama S Corporation Information/Tax Return, with the ADOR to report income, apportionment, and each shareholder's distributive share. The entity itself generally does not pay Alabama income tax on that pass-through income; instead, the income flows to the shareholders.

Resident shareholders report their share of S-corp income on Form 40, the Alabama Individual Income Tax Return, and nonresident shareholders use Form 40NR. Alabama's individual income tax is graduated, topping out at 5% on taxable income above the state's brackets. To cover nonresident owners, the S-corp generally makes a composite payment on Form PTE-C, the Nonresident Composite Payment Return, unless a nonresident shareholder files an Alabama return individually. If the business elects to be taxed as an Alabama pass-through entity, it may also pay tax at the entity level under Alabama's elective PTE tax; review current rules on the ADOR income tax division page. For the federal-versus-state mechanics of pass-through returns, see our Alabama LLC tax filing guide and the broader business tax hub.

Alabama Business Privilege Tax and Annual Compliance

Separate from income tax, every entity doing business in Alabama - including an S-corporation - owes the Alabama business privilege tax (BPT), administered by the ADOR. The tax is a privilege tax on the entity, calculated on net worth apportioned to Alabama, with a statutory maximum of $15,000 for most taxpayers. Pass-through entities such as S-corps and LLCs report it on Form PPT, the Alabama Business Privilege Tax Return and Annual Report for pass-through entities; a newly registered entity files an initial return on Form BPT-IN. Alabama has reduced the minimum privilege tax in recent years, so confirm the current minimum on the ADOR business privilege tax page before you calculate what you owe.

The business privilege tax return is due the same time as the entity's corresponding income tax return - for a calendar-year S-corp, that generally aligns with the federal return due date. Beyond tax, an Alabama S-corp must keep its registration current with the Alabama Secretary of State and maintain a registered agent. Depending on the activity, it may also need a business license in Alabama or local privilege license, and must register for sales tax and withholding with the ADOR if it sells taxable goods or has employees. Missing these filings can jeopardize the entity's good standing with the state.

Reasonable Salary, Payroll, and When S-Corp Makes Sense

The S-corp election creates real obligations. The IRS requires each owner-employee to be paid a reasonable salary for the work they perform before taking tax-advantaged distributions. That salary is subject to Social Security and Medicare (payroll) taxes, and the S-corp must run payroll, withhold federal and Alabama income tax, and file the associated payroll returns. Only the profit above a reasonable salary escapes self-employment tax - which is why the election tends to pay off once the business earns enough profit to justify the added payroll and accounting cost. Alabama itself imposes no separate self-employment tax, so the payroll-tax savings from the election are federal.

Weigh the tradeoffs before electing:

Because the math depends on profit level and how much salary is reasonable, many owners run the numbers - or ask a CPA - before filing. See LLC vs. S-corp tax and quarterly estimated taxes for the ongoing cash-flow picture, and S-corp vs. C-corp if you are also weighing C-corporation treatment.

Steps to Elect S-Corp Status in Alabama

The process of electing S-corp status for an Alabama business follows these steps:

1. Form or confirm your entity. Have an existing Alabama LLC or corporation on file with the Alabama Secretary of State. If you have not formed yet, complete Articles of Organization or a Certificate of Formation first, and confirm the entity in the Alabama business entity search.
2. Get an EIN. Obtain a federal EIN from the IRS if you do not already have one; it is required on Form 2553.
3. Confirm eligibility. Verify the entity meets the Subchapter S tests - 100-shareholder cap, one class of stock, eligible shareholders, and unanimous shareholder consent.
4. File IRS Form 2553. Complete and submit Form 2553 to the IRS by the deadline (March 15 for a calendar-year entity, or two months and 15 days into the tax year). Keep the accepted copy.
5. Set up payroll. Establish a reasonable salary for each owner-employee and register for Alabama withholding with the ADOR.
6. File Alabama returns. File Form 20S for the S-corp, the business privilege tax on Form PPT, and any composite payment on Form PTE-C, and keep your annual state filings current.

Consulting a CPA or tax professional is prudent to confirm the election is advantageous for your specific business and that your salary and distributions are documented correctly.

Frequently Asked Questions

How do I elect S-corp status in Alabama?

File IRS Form 2553, Election by a Small Business Corporation, with the IRS. Alabama recognizes the federal S-corp election and does not require a separate state election form. Once the IRS accepts Form 2553, the entity is an S-corp for Alabama purposes and files Form 20S.

What is the deadline for filing Form 2553 in Alabama?

File Form 2553 no later than two months and 15 days after the beginning of the tax year the election takes effect, or any time during the preceding tax year. For a calendar-year business, that deadline is March 15. Late elections may qualify for relief under Rev. Proc. 2013-30.

What state form does an Alabama S-corp file?

An Alabama S-corporation files Form 20S, the Alabama S Corporation Information/Tax Return, with the Alabama Department of Revenue. Income passes through to shareholders, who report their share on their Alabama individual return (Form 40 or Form 40NR).

Does an Alabama S-corp pay the business privilege tax?

Yes. Alabama S-corporations owe the annual business privilege tax administered by the ADOR, filed on Form PPT. The tax is based on net worth apportioned to Alabama, with a maximum of $15,000. Confirm current minimums on the Department's business privilege tax page.

Do Alabama S-corp shareholders pay state income tax?

Yes. S-corp income passes through to shareholders, who pay Alabama individual income tax at rates up to 5% on their share. Nonresident shareholders are covered by a composite payment the S-corp makes on Form PTE-C unless they file separately.

Does an S-corp election reduce Alabama self-employment tax?

It can reduce federal self-employment tax. Owner-employees take a reasonable salary subject to payroll taxes, and remaining profit is distributed without self-employment tax. Alabama has no separate self-employment tax, so the savings are federal, and a reasonable salary is required.

Related

• S-Corp Election (cluster hub)
• S-Corp vs. LLC
• How to Form an LLC in Alabama
• Alabama LLC Tax Filing
• How to Get an EIN
• Single-Member LLC in Alabama
• S-Corp Election in Arkansas (sibling)

Sources

1. IRS - About Form 2553, Election by a Small Business Corporation.
2. IRS - S Corporations.
3. IRS - About Form 1120-S, U.S. Income Tax Return for an S Corporation.
4. IRS - S Corporation Compensation and Medical Insurance Issues (reasonable salary).
5. IRS - Employer ID Numbers (EINs).
6. IRS - About Form 8832, Entity Classification Election.
7. Alabama Department of Revenue - Business Privilege Tax (Form PPT / BPT-IN; $15,000 maximum).
8. Alabama Department of Revenue - Income Tax Division (Form 20S, pass-through entities).
9. Alabama Department of Revenue - Tax Forms (Form 20S, Form PTE-C, Form 40, Form 40NR).
10. Alabama Department of Revenue - Individual Income Tax (graduated rates up to 5%).
11. Alabama Secretary of State - Business Entities (LLC and corporation registration).
12. Alabama Secretary of State - Business Entity Downloads and Forms.
13. Cornell Law School Legal Information Institute - S corporation (Wex).
14. Cornell Law School Legal Information Institute - 26 U.S. Code § 1362, Election; revocation; termination.
15. Cornell Law School Legal Information Institute - 26 U.S. Code § 1361, S corporation defined.
16. Cornell Law School Legal Information Institute - Pass-through entity (Wex).

LegalGlass provides general information for educational purposes and is not a law firm or a substitute for advice from a licensed attorney or tax professional. Laws, fees, and thresholds change; verify current requirements with the IRS, the Alabama Department of Revenue, and the Alabama Secretary of State before acting.