S-Corp Election in Vermont (Form 2553)

Fact-checked by the LegalGlass editorial team against primary sources · Published Aug 20, 2026 · Last updated Aug 20, 2026

A Vermont LLC or corporation becomes an S corporation by filing IRS Form 2553. The election is federal: Vermont has no separate state S-corp election form. Form 2553 is due no more than 2 months and 15 days after the beginning of the tax year the election is to take effect, or any time in the preceding tax year.

Quick Answer

Election form: IRS Form 2553, Election by a Small Business Corporation
Authority: 26 U.S.C. 1362(a)
Deadline: 2 months and 15 days after the start of the tax year, or any time in the prior year
Late relief: Rev. Proc. 2013-30 - file within 3 years and 75 days of the effective date
Vermont form: None - Vermont follows the federal election
Federal return: Form 1120-S plus Schedule K-1 for each shareholder

What the S-Corp Election Actually Is

An "S corp" is not an entity type. It is a federal tax election made under 26 U.S.C. 1362(a). A Vermont LLC stays an LLC under Vermont law and a Vermont corporation stays a corporation; the election changes only how the business is taxed for federal income tax purposes, and how the owner's compensation is characterized.

The election is made on IRS Form 2553, Election by a Small Business Corporation. The IRS describes it as the form "a corporation or other entity eligible to be treated as a corporation files ... to make an election under section 1362(a) to be an S corporation." An LLC uses the same form; filing Form 2553 also treats the LLC as electing corporate classification for this purpose.

Vermont does not issue its own S-corp election form. The state follows the federal classification, so an entity that has a valid federal S election is treated as an S corporation for Vermont purposes as well. See S-corp vs LLC for the structural comparison and what an LLC is for the underlying entity.

Eligibility Rules

Not every business qualifies. Under the Internal Revenue Code, an S corporation must be a domestic entity, have no more than 100 shareholders, have only allowable shareholders - generally individuals, certain trusts, and estates, but not partnerships, corporations, or non-resident alien shareholders - and have only one class of stock.

The one-class-of-stock rule catches LLCs most often. An operating agreement that gives different members different distribution or liquidation rights can create a second economic class and invalidate the election. If your Vermont LLC has tiered or preferred distributions, resolve that before electing.

The non-resident alien restriction is the other frequent disqualifier. A Vermont LLC with a foreign owner generally cannot be an S corporation. See what an ITIN is for the related identification issues.

The Filing Deadline

The deadline is the single most important fact on this page. The Form 2553 instructions require that the form be filed "no more than 2 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 preceding."

For a calendar-year business, that means an election effective for the current year must generally be filed by mid-March of that year, and an election can also be filed at any point during the prior year to take effect on January 1. A newly formed entity measures the period from the start of its first tax year, not from its formation date on the state's records.

Missing the deadline is common and often fixable. Under Rev. Proc. 2013-30, the IRS grants late-election relief where there is reasonable cause and the entity has otherwise acted as an S corporation, provided Form 2553 "will be filed within 3 years and 75 days of the date entered on line E" - that is, within 3 years and 75 days of the intended effective date. The late-filing explanation goes on the form itself.

Why Owners Elect S Corporation Status

The usual motive is payroll tax. A Vermont LLC taxed as a partnership or disregarded entity passes all of its net earnings through to the owners as self-employment income, and the owner pays self-employment tax on the whole amount. After an S election, the owner-employee takes a reasonable salary subject to payroll tax, and the remaining profit is distributed without self-employment tax.

"Reasonable" is the operative word. The IRS scrutinizes S corporations that pay an artificially low salary and take large distributions, and it can recharacterize distributions as wages with penalties and interest. The salary should reflect what the work would cost to hire out in your market.

The election is not free. It adds payroll processing, quarterly federal employment tax returns, Vermont withholding registration and returns, an annual Form 1120-S with a Schedule K-1 for each owner, and usually a bookkeeper or accountant. Those recurring costs are why the election typically only pays off once profit meaningfully exceeds a reasonable salary. Model both scenarios with the self-employment tax calculator.

Vermont Filings After the Election

Vermont taxes business income through the Vermont Department of Taxes. An S corporation is a pass-through for Vermont as it is federally: the entity files a Vermont business income tax return reporting its income and each shareholder's share, and the shareholders report their share on their Vermont personal income tax returns.

Vermont also imposes a minimum entity-level tax on business entities that file a business income tax return, including pass-throughs, and it requires nonresident withholding or composite reporting for shareholders who are not Vermont residents. Because the minimum tax amount, the return form numbers, and the withholding rules are set by statute and updated periodically, confirm the current requirements directly with the Vermont Department of Taxes before filing.

If the election puts an owner on payroll, the entity must also register for Vermont employer withholding and, if it has employees, unemployment insurance with the Vermont Department of Labor. Payroll registration is separate from income tax registration.

The Entity Itself Does Not Change

Filing Form 2553 has no effect on your Vermont Secretary of State record. A Vermont LLC that elects S corporation status remains an LLC on the state register, keeps the same name, keeps the same Vermont registered agent, and continues filing the same annual report with the Vermont Secretary of State.

Nothing about liability protection changes either. The shield comes from the LLC or corporate statute, not from tax classification, and it is preserved or lost on the same grounds as before - commingled funds, personal signatures, undercapitalization.

Your governing documents may need updating, though. An operating agreement written for partnership taxation often contains allocation and distribution provisions that conflict with the single-class-of- stock rule. Review it before the election takes effect rather than after.

Revoking or Losing the Election

An S election can be revoked voluntarily by filing a statement of revocation with the IRS, signed by shareholders holding more than half the shares. A revocation filed by the fifteenth day of the third month of the tax year generally takes effect for that year; otherwise it takes effect the following year.

An election can also terminate involuntarily if the entity stops meeting the eligibility rules - for example, if an ineligible shareholder acquires an interest or a second class of economic interest is created. Once an S election terminates, the entity generally cannot re-elect for five tax years without IRS consent.

If the business is closing rather than changing classification, the S corporation files a final Form 1120-S, issues final Schedule K-1s, closes its Vermont tax accounts with the Department of Taxes, and closes its EIN account with the IRS. See the national dissolution guide, the business tax hub, and the EIN guide for the surrounding steps.

Frequently Asked Questions

How do I make an S-corp election in Vermont?

File IRS Form 2553 with the Internal Revenue Service. Vermont has no separate state S-corp election form and follows the federal classification. The form must be signed by every shareholder or member, and it can be used by a Vermont LLC as well as by a Vermont corporation.

What is the Form 2553 deadline?

The IRS instructions require filing no more than 2 months and 15 days after the beginning of the tax year the election is to take effect, or at any time during the preceding tax year. For a calendar-year business that generally means mid-March for a current-year election.

Can I file Form 2553 late in Vermont?

Often yes. Rev. Proc. 2013-30 allows late-election relief where there is reasonable cause and the entity has otherwise treated itself as an S corporation, provided Form 2553 is filed within 3 years and 75 days of the intended effective date. The explanation is entered on the form.

Does Vermont recognize the federal S election?

Yes. Vermont follows the federal classification, so an entity with a valid federal S election is treated as an S corporation for Vermont purposes. The entity files a Vermont business income tax return as a pass-through, and shareholders report their share on their Vermont personal returns.

Does an S election change my Vermont LLC?

No. The LLC remains an LLC on the Vermont Secretary of State's records, keeps its name and registered agent, and files the same annual report. Only federal and state income tax treatment changes, along with how owner compensation is split between wages and distributions.

Is an S-corp election worth it for a small Vermont business?

It depends on profit. The election adds payroll processing, employment tax returns, Vermont withholding, and an annual Form 1120-S. Those recurring costs usually only pay for themselves once net profit clearly exceeds a reasonable salary for the owner's work.

Sources

IRS - About Form 2553, Election by a Small Business Corporation (election under section 1362(a)).
IRS - Instructions for Form 2553 ("no more than 2 months and 15 days after the beginning of the tax year the election is to take effect"; Rev. Proc. 2013-30 relief within 3 years and 75 days).
IRS - S Corporations (eligibility requirements).
IRS - About Form 1120-S, U.S. Income Tax Return for an S Corporation.
IRS - About Form 8832, Entity Classification Election.
IRS - Limited Liability Company (LLC) (federal default classification).
IRS - Self-Employment Tax.
IRS - Get an Employer Identification Number (EIN is free; one EIN per responsible party per day).
Vermont Department of Taxes - Business and corporate taxes (business income tax returns, minimum tax, nonresident withholding).
Vermont Department of Taxes - Employer withholding.
Vermont Secretary of State - Corporations Division (entity records and annual reports).
Legal Information Institute (Cornell) - 26 U.S.C. 1362 (S corporation election).
Legal Information Institute (Cornell) - 26 U.S.C. 1361 (S corporation definitions and shareholder limits).
Legal Information Institute (Cornell) - 26 CFR 301.7701-3 (entity classification election).

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