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S Corporations

Learn which taxpayers are eligible and ineligible to own shares in an S corporation. Filing requirement and Financial Institution information are also available.

Overview


Eligible S Corporation Shareholders

  • Individuals
  • Certain exempt organizations
  • Estates
  • Certain trusts
  • U.S. citizens or resident aliens

An S corporation can own shares in another S corporation in specific situations. The subsidiary, in this case, must be a qualified subchapter S corporation (QSUB).

Ineligible Shareholders

The following taxpayers are not allowed to own shares in an S corporation: 

  • C corporations
  • Partnerships
  • Nonresident aliens
  • Foreign trusts
  • Multiple member Limited Liability Companies
  • Limited Liability Partnerships
  • Individual Retirement Accounts

Entities that are S corporations for federal purposes are S corporations for Massachusetts purposes, with the exception of security corporations.

An S corporation's income, losses, and deductions are passed through to the shareholders, and are reported and taxed on the shareholders' individual returns. 

S corporations are liable for the non-income measure of the corporate excise and are liable for the income measure of the corporate excise on any income that is taxable to the S corporation federally at the full corporate excise rate. S corporations that are financial institutions are not subject to the non-income measure of the corporate excise.

The amount of corporate excise tax that an S corporation generally is required to pay depends in part on the corporation’s gross receipts and whether they are a financial institution or not.

More specifically the corporate excise for an S corporation that is not a financial institution is calculated as follow:

For 2019:

  • An S corporation is subject to the non-income measure of the corporate excise at a rate of $2.60 per $1,000 of either taxable Massachusetts tangible personal property or taxable net worth.
  • An S corporation is subject to the income measure of the corporate excise at a rate of 8.0% on certain built-in gains that are taxable at the federal level under IRC § 1374 and on passive investment income taxable at the federal level under IRC § 1375.
  • An S corporation with gross receipts that are $6 million or more but less than $9 million is subject to the income measure of the corporate excise at a rate of 1.97% on net income subject to tax.
  • An S corporation with gross receipts that are $9 million or more is subject to the income measure of the corporate excise at a rate of 2.95% on net income subject to tax.
  • In addition, S corporations, like traditional corporations, are subject to a minimum excise of $456.

Rate change for 2020:

  • An S corporation with gross receipts that are $6 million but less than $9 million is subject to the excise at a rate of 2.00% for tax year 2020.
  • An S corporation with gross receipts that are $9 million or more is subject to the excise at a rate of 3.00% for tax year 2020.

Financial institutions that are S corporations are taxed as a financial institution S corporation under MGL ch 63, § 2B and are not subject to the non-income measure of the corporate excise.

More specifically the corporate excise for an S corporation financial institution is calculated as follows:

For 2019:

  • An S corporation financial institution is taxed at 9.0% on any income that is taxable at the federal level.
  • An S corporation financial institution with gross receipts that are $6 million or more but less than $9 million is subject to the corporate excise at a rate of 2.63% on net income subject to tax.
  • An S corporation financial institution with gross receipts that are $9 million or more is subject to the corporate excise at a rate of 3.95% on net income subject to tax.
  • In addition, S corporation financial institutions are subject to a minimum excise of $456.

Rate change for 2020:

  • An S corporation financial institution with gross receipts that are $6 million or more but less than $9 million is subject to the excise at a rate of 2.67% for tax year 2020.
  • An S corporation financial institution with gross receipts that are $9 million or more is subject to the excise at a rate of 4.00% for tax year 2020.

Filing requirements

Massachusetts S corporations must annually file Form 355S or Form 63 FI. A Massachusetts S corporation that is included in a 355U also files Form 355S or 63FI but that return will generally be informational only.

S corporations must also include with the annual filing:

  • A Massachusetts Schedule S
  • A Massachusetts Schedule SK-1 for each resident and nonresident shareholder

S corporations must also annually provide a Schedule SK-1 to each shareholder to inform them of their distributive shares of: 

  • Income
  • Loss
  • Deductions
  • Credit

For more information on these requirements, please refer to the Form 355S instructions830 CMR 62C.11.1 and Form 63FI instructions.

S Corporation returns, together with payment in full of any corporate excise due, must be filed on or before the 15th day of the third month after the close of the taxable year, calendar or fiscal. See TIR 17-5. S Corporations meeting certain payment requirements will be given an automatic six-month extension.

S corporations that are participating in a combined report of their net income to Massachusetts must file Form 355U together with payment in full of any corporate excise due, on or before the 15th day of the fourth month after the close of the taxable year, calendar or fiscal. However,

  • An S corporation that reports both the income and non-income measure of excise with Form 355U must also submit Form 355S as an informational return, enclosing Schedule S and Schedules SK-1 with that return, determining the distributive income for shareholders and, for non-resident shareholders, the apportionment of that income without regard to the combined reporting provisions.
     
  • Financial institutions that are S Corporations, although not subject to a non-income measure of excise, must file Form 63FI for the purpose of calculating distributive income and must submit Schedules S and SK-1.

Combined report filers meeting certain payment requirements will be given an automatic seven-month extension. For more information on return due dates for S corporations included in a combined group, see 830 CMR 62C.11.1.

S corporations that have total revenues of $100,000 or more must file electronically. In addition, an S corporation must file electronically unless all of its shareholders are resident individuals. An S corporation must also file electronically if it is withholding on a shareholder’s distributive share or if it received distributive share upon which a lower-tier entity has paid withholding or estimated taxes. For more information about the E-File mandates, see TIR 16-9.

All S corporations which reasonably estimate their excise to be in excess of $1,000 for the taxable year are required to make estimated tax payments to the Commonwealth.

A shareholder that receives income, losses, and deductions passed through from an S corporation must report such items on the shareholders' returns. The following table shows generally which return each type of S corporation individual shareholder should file:

Type of shareholder Form to file
Full-year resident individual Form 1
Nonresident/part-year resident individual Form 1-NR/PY
Trust or estate Form 2
Nonresident Composite Return   Form MA NRCR

 

Page updated: March 20, 2020.

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