New York City S‑Corporations: Taxed From All Sides

Operating an S corporation in New York City involves a federal tax status layered with New York State and New York City–specific elections, returns, and potential credits. The key touchpoints for S‑corp owners are:

• Federal S‑corp eligibility, election, and filing.

• New York State’s separate S‑corp election and franchise tax filing.

• New York City’s optional Pass‑Through Entity Tax (NYC PTET).

• Metropolitan Commuter Transportation Mobility Tax (MCTMT) for employers in the NYC metro district.

• Individual‑level considerations for NYC and Yonkers residents and nonresidents.

Below is a detailed, citation‑backed guide to the principal benefits and requirements.

Federal baseline: S‑corp eligibility, election, and return

• Eligibility: An S corporation must be a domestic corporation with no more than 100 shareholders, only eligible shareholders (individuals, certain trusts, estates, and organizations described in sections 401(a) or 501(c)(3)), no nonresident alien shareholders, and only one class of stock (voting differences allowed) IRC § 1361.

• Election: File Form 2553 with the IRS. For filers in New York, submit to the Ogden, UT service center (fax permitted). Late-election relief is available under Rev. Proc. 2013‑30 if you meet specific conditions; mark the top of Form 2553 “FILED PURSUANT TO REV. PROC. 2013‑30” Instructions for Form 2553.

• Annual federal return: File Form 1120‑S by the 15th day of the 3rd month after year‑end (March 15 for calendar‑year corporations; March 17 in 2025 because March 15 falls on Saturday). Corporations filing 10 or more returns of any type during the year must e‑file Form 1120‑S (waiver possible) 2024 Instructions for Form 1120‑S.

New York State: separate S‑corp election and franchise tax filing

• Separate NYS S election: A federal S corporation must file the New York S election (Form CT‑6) to be treated as a New York S corporation; all shareholders must consent. (Consult NYS Department of Taxation and Finance for current CT‑6 filing instructions and deadlines.)

• Mandated New York S status: If a federal S corporation’s investment income exceeds 50% of its federal gross income for the year, shareholders are deemed to have made the New York S election and the corporation must file as a New York S corporation. (Consult NYS Department guidance for current rules and exceptions.)

• NYS franchise tax filing: Approved New York S corporations file Form CT‑3‑S within 2½ months after year‑end and pay the entity‑level fixed dollar minimum tax. Penalties apply for failing to file or failing to include required shareholder information. (See current NYS CT‑3‑S instructions on the NYS Department website.)

New York City Pass‑Through Entity Tax (NYC PTET): optional city‑level benefit

• What it is: The NYC PTET is an optional, calendar‑year tax that certain New York City partnerships and New York S corporations may elect to pay on eligible income; it can generate a personal income tax credit for owners subject to NYC personal income tax. (Refer to the NYC PTET guidance on the NYS Department website for current rules and procedures.)

• Who can elect: An “eligible city partnership” or an “eligible city resident S corporation” may elect; S corporations must certify at election time that all shareholders are city taxpayers. The NYC PTET election must be made together with the New York State PTET election. (See current NYC PTET guidance.)

• When and how to elect: Annually on or after January 1 and no later than March 15 via the entity’s Business Online Services account; the election is irrevocable after March 15. (See current NYC PTET guidance.)

• Estimated payments: Four installments (March 15, June 15, September 15, December 15) made via ACH debit; each installment equals 25% of the required annual payment (lesser of 90% of current‑year tax or 100% of prior‑year tax). Payments cannot be transferred to other tax types or taxpayers. (See current NYC PTET guidance.)

• Annual return: Due March 15; the NYC PTET is reported on the same PTET return as the NYS PTET for the same calendar or fiscal year. (See current NYC PTET guidance.)

• Owner credit and addback: Owners subject to NYC personal income tax claim the NYC PTET credit on Form IT‑653 and must add back the claimed credit amount on their NYS personal income tax return via Form IT‑225. (See current NYC PTET and IT‑653/IT‑225 guidance.)

Metropolitan Commuter Transportation Mobility Tax (MCTMT): payroll‑based obligation in the NYC metro area

• Who is subject: Employers required to withhold NYS income tax with payroll expense for covered employees in the metropolitan commuter transportation district (MCTD) exceeding $312,500 in a quarter; certain self‑employed individuals also may be subject. The MCTD includes NYC and the counties of Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester Publication 420—Guide to the MCTMT.

• Covered employee allocation: Tests to determine whether an employee’s services are allocated to the MCTD include localization, base of operations, place of direction and control, and residence with services in the MCTD. If covered, all wages/compensation attributable to services during covered periods are included in payroll expense for the quarterly computation Publication 420—Guide to the MCTMT.

• Note on rates: Publication 420 notes that some rate information is obsolete for quarters beginning on or after July 1, 2023; consult current Department guidance. The coverage, definitions, and allocation framework remain useful Publication 420—Guide to the MCTMT.

Individual‑level state and city rules that affect S‑corp owners

• NYC residency and tax: NYC residents pay city personal income tax on all income regardless of where earned; nonresidents do not pay NYC personal income tax. Residency follows state domicile/permanent place of abode and 184‑day rules applied at the city level Frequently Asked Questions—NY residency and telecommuting.

• Yonkers taxes: Yonkers residents owe a resident income tax surcharge on their NYS return; nonresidents may owe the Yonkers nonresident earnings tax if they earn wages or carry on a business in Yonkers or are partners in a partnership doing so Frequently Asked Questions—Yonkers residency.

• Nonresident filing: Nonresidents with NYS source income (including services performed in New York State or gains from NYC cooperative stock dispositions) must file Form IT‑203 and compute tax by apportioning the base tax according to the NY source income percentage 2025 Instructions for Form IT‑203.

Practical benefits and requirements for NYC S‑corp owners

• Benefit: Optional NYC PTET credit pathway. Electing entities can pay NYC PTET and allow direct owners subject to NYC personal income tax to claim a refundable credit, potentially mitigating federal SALT limitations (subject to required add‑back at the state level). (See current NYC PTET guidance.)

• Requirement: New York State S‑corp election is independent from the federal election. File CT‑6 timely; failing to do so could force filing as a C corporation for state purposes, or trigger mandated S status if investment income predominates. (See NYS CT‑6 guidance.)

• Requirement: New York S‑corp franchise filing and fixed dollar minimum tax. File CT‑3‑S by 2½ months after year‑end; penalties apply for missing shareholder information. (See NYS CT‑3‑S guidance.)

• Requirement: MCTMT compliance if payroll thresholds are met for covered employees working in the MCTD. Ensure proper allocation and quarterly reporting/payment Publication 420—Guide to the MCTMT.

• Requirement: Federal filings remain unchanged. Maintain Form 2553 and Form 1120‑S compliance, including e‑file mandates when applicable Instructions for Form 2553; 2024 Instructions for Form 1120‑S.

Checklist for New York City S‑corp owners

• Confirm federal S‑corp eligibility and file Form 2553 (consider Rev. Proc. 2013‑30 relief if late) IRC § 1361; Instructions for Form 2553.

• Make the separate New York S election on CT‑6 and obtain approval; calendar annual CT‑3‑S filings and fixed dollar minimum tax. (See NYS CT‑6 and CT‑3‑S guidance.)

• Evaluate eligibility and owner benefits of NYC PTET; if beneficial, elect by March 15, pay quarterly estimates, and file the PTET annual return with owner reporting for credits. (See current NYC PTET guidance.)

• Assess MCTMT applicability: test covered employee allocation and quarterly payroll expense thresholds; comply with quarterly reporting/payment Publication 420—Guide to the MCTMT.

• Ensure federal Form 1120‑S is filed by the deadline and e‑filed if your filing footprint meets the 10‑return threshold 2024 Instructions for Form 1120‑S.

• For owners, apply NYC residency rules and Yonkers taxes where relevant, and file IT‑203 (nonresidents) with proper source income/apportionment as needed Frequently Asked Questions—NY residency; 2025 Instructions for Form IT‑203.

By coordinating the federal S‑corp framework with New York State’s separate election/franchise filing and leveraging optional NYC PTET where appropriate—while monitoring MCTMT and residency‑specific personal taxes—S‑corp owners in New York City can navigate obligations and optimize available credits and benefits 2024 Instructions for Form 1120‑S; Instructions for Form 2553; 2025 Instructions for Form IT‑203.

This essay is not tax advice. Always consult a qualified tax professional for your specific situation.