Does Massachusetts recognize S Corporations?
Yes, Massachusetts recognizes S Corporations. However, the state treats them differently than the federal government in terms of taxation. While the Internal Revenue Service (IRS) allows S Corporations to pass income through to shareholders without paying federal corporate income tax, Massachusetts imposes its own set of rules.
Key facts about S Corporations in Massachusetts:
1. Entity Recognition
Massachusetts fully recognizes the federal S Corporation election. To qualify, your business must:
- First file Form 2553 with the IRS
- Be registered as a domestic or foreign corporation with the Massachusetts Secretary of the Commonwealth
2. State-Level Corporate Tax
Even though S Corporations are pass-through entities for federal purposes, Massachusetts imposes a corporate excise tax on them. This includes:
- Income-based tax (ranging from 2.0% to 3.0%, depending on revenue and classification)
- Non-income-based minimum tax of $456: S Corporations with total receipts over $6 million may face additional tax rates.
3. Shareholder Taxation
As a shareholder in an S Corp, you've gotta pay Massachusetts income tax on your share of the profits. Right now, that's a flat 5% (as of 2025).
4. Annual Report Filing
All corporations in Massachusetts, including S Corps, must file an Annual Report with the Secretary of the Commonwealth and pay a filing fee (currently $125 online).
In Massachusetts, S corporations have a sort of mixed tax situation. The income flows through to the owners, who pay personal income tax on it. But the S corp itself still has to pay an excise tax. Thinking of setting up an S corp in Massachusetts? A company like One IBC USA can help you deal with paperwork, taxes, and yearly filings without too much trouble.
