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

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

To become an S corporation you file IRS Form 2553, generally no later than 2 months and 15 days after the start of the tax year the election is to take effect. Minnesota recognizes the federal S election automatically — no separate state election — but the S-corp files Minnesota Form M8 and may owe the minimum fee.

What an S-Corp Election Is

"S corporation" is a federal tax status, not a type of entity. An LLC or a corporation elects to be taxed under Subchapter S by filing Form 2553 with the IRS. The entity then passes income through to owners (avoiding corporate-level tax), while owner-employees take a salary subject to payroll taxes and remaining profit as distributions that are not subject to self-employment tax.

An LLC can be an S corp for tax purposes while remaining an LLC legally. This is why many Minnesota LLC owners consider the election as profits grow. Compare the trade-offs in S-corporation vs LLC before filing, and see the how to form an LLC hub for entity basics.

Eligibility Requirements

To qualify for S status, the entity must be a domestic corporation or eligible LLC, have no more than 100 shareholders, have only allowed shareholders (generally U.S. individuals, certain trusts, and estates — not partnerships or corporations), have only one class of stock, and not be an ineligible corporation. All shareholders must consent to the election.

Nonresident alien shareholders are not permitted, which can matter for owners using an ITIN. If your ownership structure is complex, confirm eligibility before filing. Meeting these rules is a prerequisite; the IRS will reject an election from an ineligible entity.

The Form 2553 Deadline

Timing is the trickiest part. To take effect for a given tax year, Form 2553 must generally be filed no later than 2 months and 15 days after the beginning of that tax year (about March 15 for a calendar-year business), or at any time during the preceding tax year. Miss the window and the election normally takes effect the following year.

The IRS offers late-election relief under Revenue Procedure 2013-30 if you had reasonable cause and meet the requirements, letting you file 2553 late with an explanation. Do not assume relief; file on time when you can. See the Instructions for Form 2553 for the exact rules.

Minnesota Recognizes the Federal Election

Minnesota is a state that automatically follows the federal S election — you do not file a separate Minnesota S-corp election. Once the IRS accepts Form 2553, the entity is an S corporation for Minnesota income tax too. The S corporation files Minnesota Form M8, the S corporation return, with the Minnesota Department of Revenue, and income passes through to shareholders' Minnesota returns.

Minnesota also imposes a minimum fee on S corporations (and partnerships) whose Minnesota property, payroll, and sales exceed set thresholds, calculated on those factors. Smaller businesses below the thresholds owe no minimum fee. See Minnesota LLC tax filing for the return details.

Reasonable Salary and Payroll

The central compliance duty of an S corp is paying owner-employees a reasonable salary for the work they perform before taking distributions. The IRS scrutinizes S corps that pay little or no wages while distributing large profits, because wages carry payroll taxes and distributions do not. "Reasonable" depends on duties, experience, and comparable pay.

Running payroll means registering for federal and Minnesota withholding and unemployment accounts and filing employment tax returns. These added costs are why the S election pays off mainly once profits comfortably exceed a reasonable salary. See IRS guidance on paying yourself and the business tax overview.

Is the Election Worth It?

The S election can reduce self-employment tax because only the salary portion is subject to Social Security and Medicare taxes, while distributions are not. But the savings must outweigh the costs: payroll processing, additional tax filings (federal 1120-S and Minnesota M8), possible minimum fee, and the discipline of a defensible salary. Many advisers suggest the math favors S status only after net profit consistently exceeds a reasonable salary by a meaningful margin.

Before electing, model your numbers or consult a CPA, and confirm your LLC or corporation meets every eligibility rule. If it is not yet worthwhile, staying a default LLC keeps things simple. Compare paths in S-corporation vs LLC and see Minnesota formation.

Filing Mechanics and Payroll Setup

File Form 2553 with the correct IRS service center and keep the acceptance letter (the CP261 notice) with your permanent records. The IRS notifies you whether the election was accepted; if you do not receive confirmation, follow up before you begin filing as an S corporation. Filing 1120-S returns without an accepted election causes problems.

Set up payroll before you take distributions. An S corporation must run formal payroll for owner-employees, which means registering for federal and Minnesota withholding and unemployment accounts, issuing W-2s, and filing employment tax returns. Many owners use a payroll provider to handle deposits and filings accurately.

Document how you set the reasonable salary. Keep notes on the owner's duties, hours, and comparable market pay so you can defend the figure if questioned. A defensible salary is the heart of S-corp compliance; paying too little to minimize payroll tax is the classic audit trigger the IRS looks for.

Coordinate the election with your Minnesota filings. The S corporation files Form M8 and may owe the business tax minimum fee based on Minnesota property, payroll, and sales. Income passes through to shareholders' Minnesota returns, so align the entity return, the K-1s, and each owner's personal return. See Minnesota LLC tax filing.

Reassess annually. The S election is not permanent; you can revoke it, and it can be terminated if the entity stops meeting the eligibility rules. As profit, payroll, and your situation change, confirm the election still makes sense. If it no longer does, plan a clean revocation with your CPA rather than drifting out of compliance.

Confirm eligibility carefully before filing, because a defective election is disruptive to unwind. Verify the shareholder count and types, the single-class-of-stock requirement, and that no owner is a nonresident alien. If your ownership includes trusts or entities, check that each qualifies, since one ineligible owner can invalidate the whole election.

Time the election around your tax year and cash flow. The 2-months-15-days window drives when S treatment begins, and starting payroll mid-year complicates your reasonable-salary calculation. Many owners align the election with the start of a tax year so the salary, distributions, and Minnesota filings all track a clean twelve-month period.

Model the Minnesota-specific costs, not just the federal savings. The state minimum fee based on property, payroll, and sales, plus the mechanics of Form M8 and pass-through reporting, affect whether the election truly pays off. Run the combined federal and Minnesota numbers so the payroll-tax savings clearly exceed the added compliance and any minimum fee. See Minnesota LLC tax filing.

Keep the election and your records consistent year over year. File 1120-S and M8 on time, issue accurate K-1s, and revisit whether S status still fits as profit and payroll change. Because the election can be revoked or terminated, a periodic review with your CPA keeps you from drifting into noncompliance or overpaying for a structure you have outgrown.

Frequently Asked Questions

What form do I file for an S-corp election in Minnesota?

You file IRS Form 2553 for the federal S election. Minnesota recognizes it automatically, so there is no separate state election form; the S-corp then files Minnesota Form M8.

What is the deadline to file Form 2553?

Generally no later than 2 months and 15 days after the start of the tax year the election takes effect, or any time during the prior year. Late-election relief is available with reasonable cause.

Does Minnesota require a separate S-corp election?

No. Minnesota automatically follows the federal S election. Once the IRS accepts Form 2553, your entity is an S corporation for Minnesota income tax purposes.

What is the Minnesota minimum fee?

It is a fee on S corporations and partnerships whose Minnesota property, payroll, and sales exceed set thresholds, calculated on those factors. Businesses below the thresholds owe no minimum fee.

Do S-corp owners have to take a salary?

Yes. Owner-employees must be paid a reasonable salary subject to payroll taxes before taking distributions. Underpaying wages to avoid taxes is a common IRS audit trigger.

Related

• S-corp vs LLC
• How to form an LLC in Minnesota
• Minnesota LLC tax filing
• How to get an EIN
• Business tax overview
• Self-employment tax calculator

Sources

1. IRS — About Form 2553 (Election by a Small Business Corporation).
2. IRS — Instructions for Form 2553 (2 months 15 days election deadline; late relief).
3. IRS — S Corporations (federal S-corporation rules).
4. IRS — Paying Yourself (S-corp reasonable compensation).
5. IRS — Get an Employer Identification Number (EIN is free; issued by the IRS).
6. Cornell LII — 26 U.S.C. § 1361 (S corporation defined; eligibility).
7. Cornell LII — 26 U.S.C. § 1362 (election; when effective; revocation).
8. Minnesota Dept. of Revenue — S Corporation Tax (Form M8; follows federal election).
9. Minnesota Dept. of Revenue — Minimum Fee (property, payroll, and sales factors).
10. Minnesota Dept. of Revenue — Pass-Through Entity Tax (elective PTE tax).
11. Minnesota Secretary of State — Business & Liens (entity formation).
12. IRS — Business Structures (entity types overview).
13. IRS — Limited Liability Company (LLC) (federal default classification).
14. IRS — About Form 8832 (entity classification election).

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 and the Minnesota Department of Revenue before acting.