District of Columbia LLC: S corp or C corp?

District of Columbia at a glance

What is different about District of Columbia?

Washington, DC does not follow the usual S corporation script. Its code defines 'corporation' to include any S corporation as defined under federal section 1361(a), so an S corp files and pays like a C corp: 8.25% of DC net income, with a $250 minimum or $1,000 once DC gross receipts pass $1 million. An LLC that never elects anything sits in a different box. It pays the unincorporated business franchise tax, also 8.25%, but after a 30% owner salary allowance and a $5,000 exemption, and it is exempt entirely if more than 80% of its income is the members' personal services. So electing S can move you out of an exemption and onto the full corporate bill. The election saves federal payroll tax. In DC it rarely saves DC tax.

Does District of Columbia recognize a federal S corp election?

DC does not recognize the S corporation as a pass-through. The DC Code says a 'corporation' includes an S corporation as defined in federal section 1361(a), so the S corp pays the District's corporate franchise tax at 8.25% of DC net income. The minimum is $250, or $1,000 if DC gross receipts exceed $1 million. There is no separate DC S election form to file. You still need your federal election, and your DC return is a corporate franchise return, not a pass-through return.

Does my LLC need a separate District of Columbia election or form?

DC has no separate S election; the S corporation files as a corporation under the franchise tax.²

What does District of Columbia tax an S corp or LLC at the entity level?

• A DC S corporation pays the same franchise tax as a C corporation: 8.25% of DC net income, with a $250 minimum ($1,000 if DC gross receipts top $1 million).³
• A DC LLC taxed as a partnership or disregarded entity pays the 8.25% unincorporated business franchise tax once gross receipts pass $12,000, with a $250 minimum.⁵
• An LLC that has not elected corporate tax treatment pays the 8.25% unincorporated business franchise tax instead of the corporate franchise tax.⁷
• An unincorporated business is exempt from the UBT if more than 80% of its gross income comes from the members' personal services and capital is not a material income-producing factor.⁸

Is a District of Columbia LLC taxed as a C corp ever better?

A DC C corporation pays the corporate franchise tax at a flat 8.25% of DC net income. OTR's table lists 8.25% for every year from 2018 through 2025. The minimum tax is $250 if DC gross receipts are $1 million or less, and $1,000 above that. Profit you pay out as dividends is also taxed on your personal DC return, at DC's graduated rates up to 10.75%. The corporate rate is the same as an S corp's, so the C corp's disadvantage is the second layer of tax, not a higher DC rate.

Do any District of Columbia cities tax S corps differently?

• DC taxes S corporations under its corporate franchise tax, not as pass-throughs, because the DC Code defines 'corporation' to include an S corporation.⁹

Run your District of Columbia numbers

In DC the S election saves federal self-employment tax on distributions, not DC franchise tax, because DC taxes the S corp at the same 8.25% as a C corp. If your LLC is exempt from the unincorporated business tax because more than 80% of income is personal services, an S election can end that exemption. Run both numbers before you file the election.

How much would a District of Columbia LLC owner save as an S corp?

Assumes a 60% salary¹¹ and a single filer. Income tax is left out. C corp dividends are taxed again. The DC LLC tax uses the 30% owner allowance and $5,000 exemption.

When is the Form 2553 deadline for a District of Columbia LLC, and what if I miss it?

Late relief: federal steps, deadline guide.

What to do next

More on District of Columbia: How to start a District of Columbia LLC · How to start a District of Columbia corporation · District of Columbia LLC cost · District of Columbia annual report · Annual report late fees by state

Common questions