Pennsylvania S Corporation Tax Treatment

In order to be treated as an S corporation in Pennsylvania, a business must have a valid federal S election.  The S election changes the point at which Pennsylvania state income tax is triggered.  Rather than the tax being levied at the corporate level, the S corporation passes its income, gains, losses, and deductions through to the shareholders and Pennsylvania income tax is due at the personal level.

A federal S corporation can elect not to be treated as a Pennsylvania S corporation by filing Form REV-976, Election Not to be Taxed as a Pennsylvania S Corporation, by the 15th day of the fourth month following the corporations first tax year, or by the extended due date of the PA RCT-101 [see reference below to Pennsylvania capital stock tax/franchise tax].

A Pennsylvania S corporation files an annual Form PA-20S/PA-65, Pennsylvania S Corporation/Partnership Information Return [Pennsylvania uses the same form for reporting S corporation activity as it does for partnership activity].   The due date for filing the return is generally April 15.  A five-month extension is available to delay the filing deadline to September 15.

The Pennsylvania Department of Revenue requires the filing of Form PA-20S/PA-65 for both domestic [corporations created in Pennsylvania] and foreign S corporations [those created in other states] if either of the following applies:

  1.  If the corporation had any gross income or loss allocable to Pennsylvania, even if that gross income or loss was not distributed; and/or
  2. The corporation had at least one Pennsylvania resident shareholder [either an individual, an estate, trust, or single-member limited liability company].

If an S corporation, filing a PA-20S/PA-65, has any shareholders who are not Pennsylvania residents that S corporation is required to withhold quarterly Pennsylvania tax from those non-resident shareholders, based on the non-resident shareholders’ expected shares of distributable Pennsylvania-source taxable income and remit the withholding quarterly [generally April 15, July 15, October 15, and January 15] if the total liability for all non-resident shareholders is expected to equal or exceed $500.  If the liability is less than $500, the withholding is generally due January 30.   If remitted withholding exceeds the final tax liability, the overpayment is passed-through to the non-resident shareholders who can claim a refund on their personal Pennsylvania income tax returns.  No withholding from Pennsylvania residents is permitted.

A Pennsylvania S corporation is also required to file a Pennsylvania capital stock tax/franchise tax return [Form PA RCT-101, PA Corporate Tax Report].  For information on this filing please look “Tax Rates” “Corporate – Other Taxes” on this blog.

If you have specific questions about your S corporation or are looking for a tax preparer, please contact us at 724-834-3900.

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Roy & Associates, PC serves clients in western Pennsylvania located predominantly in Westmoreland County, Allegheny County, and Fayette County.

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