S-Corp State Taxes: A State-by-State Guide for 2026

#Why the federal S election doesn’t control state taxes

When you file IRS Form 2553 and elect S-corp status, you unlock federal pass-through treatment: the corporation itself pays no federal income tax, and profits flow through to your personal Form 1040 via Schedule K-1.

That’s the federal picture. State law is a completely separate matter.

#Each state writes its own rules

Every state (and major city) has the authority to accept the federal S election, reject it, modify it, or layer additional taxes on top. About 40+ states broadly follow the federal treatment and don’t impose a separate entity-level income tax. But the exceptions carry enough dollar weight that you need to know exactly where you stand before you operate.

#The three types of state treatment

Type 1 — Full recognition, no entity tax. The state honors the federal S election and taxes owners only on their K-1 income at the personal level. Florida, Nevada, and Wyoming fall here.

Type 2 — Partial recognition with an entity-level charge. The state recognizes S-corp pass-through status but still charges an entity-level franchise tax or minimum fee. California and New York State fall here.

Type 3 — Non-recognition. The state ignores the federal S election and taxes the entity like a C-corp. Tennessee and New York City are the most common examples.

#The real cost of Type 3 states

If you operate an S-corp in a Type 3 state, you don’t get the pass-through benefit at the state level. The entity pays state tax first, and then you may owe state income tax again on your personal K-1 income. You’re potentially taxed twice at the state level on the same earnings. That’s the scenario worth planning around before you pick a state of formation or open an office location.

For a deeper look at what income level makes the S election worth pursuing in the first place, see our guide on when the S-corp election makes sense.

#California: the entity-level franchise tax and the 1.5% hit

California runs one of the most expensive state-level S-corp tax regimes in the country.

#The 1.5% franchise tax (with $800 floor)

Every S-corp doing business in California owes the greater of 1.5% of net income or $800 as the annual franchise tax to the California Franchise Tax Board (Form 100-S). This is an entity-level tax the corporation pays before any income passes through to you.

Here’s what that looks like on $300,000 of S-corp net income:

• Entity-level CA franchise tax: $300,000 x 1.5% = $4,500
• Pass-through income to owner after entity tax: $295,500
• CA personal income tax at 9.3% marginal rate (approximate): $27,481
• Total California-layer tax: $31,981

Compare that to a Florida S-corp owner with identical $300,000 of net income:

• Entity-level FL franchise tax: $0 (Florida has no state income tax and no entity-level S-corp tax)
• FL personal income tax: $0
• Total Florida-layer tax: $0

The difference on the same business income runs over $30,000 per year. If you live in California, you can’t avoid the personal income tax on your K-1. But understanding the separate entity-level 1.5% hit matters especially when you’re deciding where to form or where to register a foreign S-corp.

#The first-year new entity exemption

California waives the $800 minimum franchise tax for an S-corp’s first taxable year when it’s newly formed or first qualifies in the state. The 1.5% on first-year net income still applies. So if your new CA S-corp has $0 net income in year one, you pay $0. If it earns $150,000 in year one, you pay $2,250 (1.5% x $150,000). Year two, the minimum kicks in.

#CA PTET: the partial offset

California offers a pass-through entity tax (PTET) election (Form 3804), extended through 2030. The S-corp pays an elective state tax at 9.3% on the K-1 income at the entity level. That payment is fully deductible on the federal return, bypassing the federal SALT cap. Owners receive a CA personal income tax credit equal to the PTET paid. For higher-income CA S-corp owners, the PTET election can save $5,000 to $20,000+ per year in federal taxes. We break down the full math in our PTET election guide.

#New York: three different tax regimes in one state

New York is the only state where your S-corp may face completely different treatment depending on whether your income is sourced to New York State, New York City, or both.

#New York State fixed-dollar minimum

New York State recognizes the federal S election, but S-corps still owe a fixed-dollar minimum tax based on New York receipts, ranging from $25 to $4,500 per year. For most S-corp owners, this is a manageable compliance cost, not a significant dollar burden.

Critical: New York S-corps must make a separate New York S election (Form CT-6). The federal Form 2553 doesn’t automatically carry over. Miss the NY S election and the state treats your entity as a C-corp and taxes it at full corporate rates. This is one of the most common and expensive multi-state filing mistakes we see.

Starting with tax years beginning January 1, 2026, New York no longer requires S-corps with less than $5,000 of tax liability to make quarterly estimated payments. That’s a meaningful administrative simplification for smaller operations.

#New York City: doesn’t recognize S-corp status

New York City is a Type 3 non-recognition jurisdiction. The city does not honor the federal S election. If your S-corp operates in New York City, it pays the General Corporation Tax (GCT) at rates up to 8.85% of NYC-allocated income, the same as a C-corp.

For an S-corp owner based in New York City, the full tax stack looks like this: federal income tax, New York State income tax, and New York City GCT at the entity level. Understanding the full combined rate matters before you decide where your operations are physically located within New York.

#NY PTET election

New York State offers a PTET election for S-corps, and for high-earning NY owners it’s one of the most valuable in the country. New York marginal income tax rates run as high as 10.9%, so the PTET election (deductible at the entity level, credited at the personal level) can generate real federal savings for owners with large K-1 income.

#Texas and the margin tax trap

Texas is famous for having no personal state income tax. That’s accurate. But Texas S-corps are not automatically off the hook for state-level business taxes.

#The no-tax-due threshold

Texas imposes the franchise tax (also called the margin tax) on all entities doing business in the state, including S-corps. The good news: for most small S-corps, the no-tax-due threshold protects you entirely. For the 2026 tax reporting period, entities with annualized total revenue at or below approximately $2.47M to $2.65M owe no Texas franchise tax. The threshold adjusts annually, so verify the current figure with the Texas Comptroller before filing.

If your Texas S-corp exceeds the threshold, the standard rate is 0.75% of taxable margin (0.375% for entities primarily in retail or wholesale trade). That’s far less than California’s 1.5% of net income, and it’s calculated on a margin concept (revenue minus certain deductions), not on net profit.

#How taxable margin is calculated

Texas gives you four methods to calculate taxable margin and you pick the one that produces the lowest number:

• 70% of total revenue
• Total revenue minus cost of goods sold (COGS)
• Total revenue minus compensation paid to employees (with limits)
• Total revenue minus $1 million

Most service-based S-corps use the compensation subtraction because the COGS option is small. A Texas S-corp paying $600,000 in salaries on $1.5M of revenue might have $0 taxable margin after the compensation deduction. For a full breakdown of the Texas franchise tax annual report requirements, see our Texas franchise tax guide.

#Other no-income-tax states: where S-corps are truly tax-free

Texas, Florida, Nevada, Wyoming, South Dakota, Alaska, and Washington all have no state personal income tax. But watch out for Washington: the state imposes a Business and Occupation (B&O) tax on gross receipts at rates from 0.138% to 1.75% depending on business classification. That’s not an income tax, but it’s a real cost for Washington S-corp owners.

The genuinely low-friction states for S-corps are Florida, Nevada, and Wyoming: no income tax, no gross receipts layer, no entity-level franchise charge on S-corps.

#States that don’t recognize the federal S election

A small but significant group of states ignores the federal S election and taxes your S-corp like a C-corp.

#Tennessee: the 6.5% excise tax

Tennessee does not recognize the federal S-corp election. A Tennessee S-corp owes the franchise and excise tax regardless of its federal pass-through status.

The excise tax component: 6.5% of net earnings, with the first $50,000 of net earnings exempt. There’s also a franchise tax component of $0.25 per $100 of net worth (minimum $100).

Here’s the dollar impact on a Tennessee S-corp with $300,000 of net income:

• Exempt amount: $50,000
• Taxable earnings: $250,000
• TN excise tax: $250,000 x 6.5% = $16,250
• TN franchise tax on net worth (varies by capitalization): roughly $250 to $1,000 for a mid-size operation
• Total TN entity-level cost: approximately $16,500 to $17,250

The federal S election still saves you on your federal return. Tennessee owners benefit from pass-through treatment on Form 1040. But they need to budget explicitly for the state excise tax at the entity level.

#How to adapt your planning in non-recognition states

When your state ignores the S election, three adjustments matter:

• Budget the entity-level state tax explicitly. Don’t assume the S-corp savings you calculated federally carry over to your state return.
• Consider whether the combined tax still beats the alternative. In most cases the federal SE-tax savings from the S election still outweigh the state excise tax. But run the numbers both ways before assuming.
• Watch the state’s estimated tax calendar. Entity-level taxes in non-recognition states often have different due dates than your federal estimated payments.

#Where S-corps owe nothing at the entity level

Not every state taxes your S-corp twice. Florida, Nevada, and Wyoming are the cleanest states for S-corp owners: no state income tax, no entity-level franchise tax, no gross receipts layer.

Illinois is a notable exception among income-tax states: Illinois imposes a 1.5% personal property replacement tax (PPRT) on S-corp net income, functioning much like California’s franchise tax at the same rate. Illinois owners should include this entity-level charge in their planning.

If you operate across multiple states, nexus and apportionment become their own topic. Our multi-state nexus guide explains how states claim taxing rights over your income and how to minimize overlap when you have customers or employees in more than one state.

#Pass-through entity tax (PTET): the SALT workaround by state

More than 30 states now offer a PTET election for S-corps. The PTET is the broadest available strategy for reducing federal taxes on S-corp income in high-tax states.

#How PTET works as an entity-level deduction

The core idea: the state allows your S-corp to pay state income tax at the entity level. Under IRS Notice 2020-75, entity-level PTET payments are fully deductible on the federal return, reducing the K-1 income that flows to your Schedule E. Owners receive a personal state income tax credit equal to the PTET paid.

The result: you effectively deduct your state income taxes above the $10,000 federal SALT cap because the deduction happens at the entity level, before the SALT limitation applies.

#Does PTET still make sense after the OBBBA SALT cap increase?

Yes, for many owners. The One Big Beautiful Bill Act (OBBBA, 2026) raised the federal SALT deduction cap to $40,400 for most filers. For owners in moderate-tax states with combined state income tax bills below $40,400, the personal SALT deduction now covers their full state tax. PTET becomes less urgent in those cases.

But for California and New York owners with state income tax bills well above $40,400, the PTET still delivers a real federal deduction on the excess. A California S-corp owner with $500,000 of K-1 income might owe $65,000+ in CA state income tax, far above the $40,400 cap. The PTET captures the federal deduction on the amount above the cap.

#PTET by key state

• California: PTET rate 9.3% on K-1 income; extended through 2030; election deadline is June 15 of the tax year (missing it costs you the benefit for the entire year)
• New York: PTET rate based on the applicable New York income tax bracket, up to 10.9%
• Texas: PTET available; particularly useful for owners with passive income or who benefit from reducing federal Schedule E income
• Florida: No PTET available or needed (no state income tax)
• Tennessee: No PTET available (non-recognition state with its own entity-level excise tax)

#How 8 states compare

#Common questions

Does California’s $800 minimum apply even if my S-corp loses money? Yes. The $800 minimum is owed every year the entity is active in California, regardless of profit or loss. The 1.5% rate only exceeds the $800 minimum when net income is above roughly $53,333. Below that, you pay $800. Above it, 1.5% wins. New entities are exempt in their first tax year.

Do I need to make a separate S election in every state where I do business? Not always, but often yes. California requires Form 3560. New York requires Form CT-6. Most other states accept the federal Form 2553 automatically or have their own consent process. Check each state’s department of revenue before assuming your federal election carries over.

My S-corp has customers in two states. Does each state tax 100% of my income? No. States use apportionment formulas to divide your income based on where it’s sourced. Most states now use a single-sales-factor formula (revenue sourced to that state divided by total revenue). You typically owe state income tax only on the portion of income attributable to each state. See our multi-state nexus guide for how apportionment works in practice.

I live in Florida but my S-corp has employees working in California. Do I owe CA tax? Yes. California taxes income sourced to California regardless of where the owner resides. If your S-corp has employees, property, or customers in California, California will assert nexus and require a Form 100-S. You’ll owe the CA franchise tax on the CA-allocated net income.

Is the Tennessee excise tax deductible on the federal return? Yes. The TN franchise and excise tax is a state business tax and is deductible as a business expense on Form 1120-S. A TN S-corp paying $16,250 in excise tax reduces its K-1 income by $16,250 before it flows to your federal Schedule E. The federal savings offset part of the state hit.

Can I use the CA PTET election if my S-corp also has operations in other states? Yes, but the CA PTET applies only to California-sourced income. You’d calculate and elect PTET based on the CA-allocated portion of K-1 income. If you operate in New York too, you’d elect NY PTET separately on the NY-allocated portion. Each state’s PTET is calculated independently.

What happens if I miss California’s PTET election deadline? You lose the PTET benefit for that entire tax year. California’s PTET election deadline is June 15 of the tax year, not the extended filing deadline. Miss it and you’re stuck with the personal-level SALT deduction, subject to the $40,400 cap. For higher-income CA owners, that’s a cost of thousands of dollars in missed federal deductions. Set a calendar reminder.

I’m thinking about moving my S-corp from California to Nevada. What do I need to do? Moving means dissolving or withdrawing from California and forming or registering in Nevada. You’ll owe a final-year CA franchise tax return through the dissolution date. Nevada charges no income tax and no franchise fee, so the savings start in the new year. But be careful: if you still live in California, California will continue to tax your K-1 income as a CA resident even if the entity is now a Nevada S-corp. The entity’s state and your personal residency are separate issues.

---

#Ready to figure out what your specific state is actually costing you?

Look, most S-corp owners we talk to have never seen a clean comparison of their federal savings versus their state-level S-corp costs. In some states you’re saving $20,000 per year. In others you’re net-neutral or worse. We don’t do surprises. Before you lock in your S election strategy, you should know the full number.

Book a 15-minute Tax Discovery — Google Meet, no pitch, free advice either way. Or review what a full S-corp strategy engagement covers at our tax planning advisory page.