Massachusetts LLC: S corp or C corp?

Massachusetts at a glance

What is different about Massachusetts?

Most states leave an S corporation alone and tax the owners. Massachusetts mostly does the same, then adds a twist: once your S corporation has total receipts of $6,000,000 or more, it pays an income-measure excise at the entity level. The statute sets the rate by receipts: two-thirds of the full rate when receipts are under $9,000,000, and a higher rate from $9,000,000 up. Receipts means gross sales plus interest, rent and other income, so a low-margin business can cross the line long before it is rich. Below $6,000,000, you report the profit on your own Massachusetts return, where the state also adds an additional 4 per cent on taxable income over $1,000,000. Either way, the corporation owes the $456 minimum excise each year, and the LLC annual report costs five hundred dollars.

Does Massachusetts recognize a federal S corp election?

Massachusetts recognizes the federal S election and taxes the income as if you earned it directly. There is no entity tax on small S corporations beyond the minimum excise. Once total receipts reach $6,000,000, the corporation pays the income-measure excise on its net income: two-thirds of the full rate when receipts are under $9,000,000, and the 8.0 per cent corporate rate less the Part B individual rate at $9,000,000 or more. The $456 minimum applies to every corporation. Confirm the exact percentage against the Department of Revenue's current S corporation return instructions.

Does my LLC need a separate Massachusetts election or form?

Massachusetts has no separate S election; it follows the federal election and taxes the income as if the owners earned it directly.²

What does Massachusetts tax an S corp or LLC at the entity level?

• A Massachusetts S corporation with total receipts of $6,000,000 or more pays an income-measure excise: two-thirds of the full rate when receipts are under $9,000,000, and the corporate rate less the Part B individual rate at $9,000,000 or more.³
• A Massachusetts LLC pays a fee of five hundred dollars every year when it files its annual report.⁵

Is a Massachusetts LLC taxed as a C corp ever better?

A Massachusetts C corporation pays an excise of 8.0 per cent of net income, and the total can never be less than the $456 minimum excise. Profits then face a second layer when you pay them out as dividends, since the corporation has already paid the excise. The C corporation also owes the five hundred dollar LLC annual report fee if it is an LLC, like every Massachusetts LLC filing one.

Run your Massachusetts numbers

In Massachusetts the S election starts to pay once profit is high enough that the salary-versus-distribution split matters, and it keeps paying until receipts hit $6,000,000. Past that line you add an entity excise, and the $456 minimum is owed either way. Watch receipts, not just profit: they count interest, rent and other income, with cost of goods sold not deducted.

How much would a Massachusetts LLC owner save as an S corp?

Assumes a 60% salary⁸ and a single filer. Income tax is left out. C corp dividends are taxed again. Every Massachusetts corporation, S or C, owes the $456 minimum excise; the S corp income measure starts at $6,000,000 of receipts. The $500 LLC annual report fee stays due after you elect, so it is left out.

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

Late relief: federal steps, deadline guide.

What to do next

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

Common questions