Does Pennsylvania Tax S Corps?

One of the states that accept S corporations or S corps is Pennsylvania. For federal tax purposes, a S corporation is a specific type of organization that passes through all of its income, losses, deductions, and credits to its owners. As a result, the S corp does not have to pay federal income taxes. Instead, the S corp’s profits and losses are reported by the stockholders on their personal tax returns.

S corporations are not taxed on their corporate income in Pennsylvania. Other state taxes, such the personal income tax and the capital stock/foreign franchise tax, must still be paid by the S corp and its stockholders. The capital stock/foreign franchise tax rate in Pennsylvania is 0.89 mills on each dollar of capital stock, surplus, and undivided earnings, whereas the personal income tax rate is a flat 3.07%.

The corporation must first fulfill the IRS’s eligibility standards in order to be eligible to operate as a S corp in Pennsylvania. No more than 100 individuals, estates, specific trusts, or tax-exempt organizations may be stockholders in the corporation. In order to qualify as a domestic corporation for tax purposes, a company must also have been incorporated in the United States and not chosen to be taxed as a foreign corporation.

There is no separate S corp election necessary in Pennsylvania. Instead, the firm must include a declaration that it is a S corporation in a Pennsylvania RCT-101 Corporate Tax Report. On their individual tax returns, the shareholders must additionally disclose their portion of the S corp’s profits and losses.

In conclusion, S corporations are not subject to income tax in Pennsylvania. The personal income tax and the capital stock/foreign franchise tax are two additional state taxes that still apply to S companies and their shareholders. The corporation must satisfy the IRS’ eligibility standards and submit a Pennsylvania RCT-101 Corporate Tax Report with a statement designating it as a S corporation in order to be considered a S corporation. A shareholder’s part of the S corp’s profits and losses must also be reported on their personal tax returns.