New York LLC vs. S-Corp — Understanding the Tax Election

An S-Corp is not a separate entity type — it is a tax election your LLC makes with the IRS (Form 2553) and NY Tax Department (Form CT-6). In New York, the S-corp election is especially valuable because it enables the PTET election and saves both federal self-employment tax and potentially reduces MCTMT liability. For all comparisons, see our comparisons hub.

The Key Distinction

The S-Corp + PTET Combo in NY

This is the most powerful tax strategy for NY LLC owners. Combined benefits:

1. Federal SE tax savings: 15.3% saved on all distributions beyond salary
2. PTET benefit: State tax paid at entity level, deductible federally (bypasses $10,000 SALT cap)
3. MCTMT reduction: Based on payroll in the MCTD, not total income

Example — single-member NYC LLC, $200K net profit:

Without S-corp:

• SE tax: ~$26,500
• SALT deduction: capped at $10,000 (losing ~$7,000 in potential federal deductions)
• MCTMT: $680

With S-corp ($90K salary) + PTET:

• Payroll taxes: ~$13,800
• SALT bypass via PTET: ~$5,000-$8,000 additional federal savings
• MCTMT: $306
• Total savings: ~$18,000-$22,000/year

When S-Corp Makes Sense in NY

Good candidates:

• Net profit consistently above $80K+ (NYC) or $60K+ (outside NYC)
• Owner actively works in the business
• Can commit to regular payroll compliance
• Wants PTET eligibility as a single-member LLC

Poor candidates:

• Net profit under $50K (payroll costs eat savings)
• Real estate rental LLCs (passive income exempt from SE tax)
• Variable income making salary prediction difficult
• Plans to have complex partnership-style allocations (S-corp restricts this)

How to Elect

1. Federal: File Form 2553 with the IRS by March 15 of the tax year
2. NY State: File Form CT-6 with the NY Tax Department (required separately — federal election alone is not sufficient for NY)
3. Set up payroll — must pay yourself W-2 salary through proper NY payroll (withholding state/city tax, UI, disability)
4. File Form 1120-S (federal) and CT-3-S (NY) annually by March 15

FAQ

Do I need both Form 2553 AND CT-6 for NY?

Yes. The federal S-corp election (Form 2553) does not automatically apply for New York state purposes. You must separately file Form CT-6 with the NY Tax Department to be treated as an S-corp for state tax. Missing CT-6 means you are an S-corp federally but taxed differently by NY.

Does the S-corp election affect my publication requirement?

No. Publication is determined by entity type (LLC), not tax election. Your LLC still needs publication regardless of whether you elect S-corp, C-corp, or stay default.

What is "reasonable compensation" for NY S-corp owners?

Same IRS standard as everywhere, but NYC salaries tend higher than national averages. Set salary at what you would pay someone in the NYC/NY market to do your job. Conservative approach: 40-60% of net profit, benchmarked against market salaries for your role and industry in your geographic area.