Believing the federal S election saves DC tax — and then running the classic low-salary/high-distribution strategy, which actively BACKFIRES in DC. Because DC treats the S corp as a C corp on Form D-20, officer compensation is a deductible entity-level expense. Every dollar the owner does NOT take as W-2 salary stays in DC taxable income and gets taxed at 8.25% at the entity level. So the federal reasonable-compensation optimization (minimize salary) directly increases the DC franchise tax bill. Owners also routinely fail to file D-20 at all — believing pass-through status means nothing is owed — and then get assessed the $250 or $1,000 minimum tax plus penalties for every open year, since the minimum tax is due even with zero or exempt income. Second-order trap: a DC resident cannot claim the DC out-of-state credit for another state's PTET (OTR Tax Notice 2022-03).
S-corp election in District of Columbia
In short
DC Corporation Franchise Tax on Form D-20 at 8.25% of DC taxable income, with a hard minimum tax of $250 (DC gross receipts $1M or less) or $1,000 (DC gross receipts over $1M) — payable by every S corp regardless of federal pass-through status.
Does District of Columbia recognize the federal S election?
DC does NOT recognize S corporation status. The 2025 Form D-20 instruction booklet (revised 11/2025) states flatly: "For District tax purposes, S corporations, including Qualified Subsidiaries (Q-Subs), are C corporations." Every S corporation carrying on a trade or business in DC or receiving DC-source income must file Form D-20 and pay the 8.25% corporation franchise tax at the entity level, plus at least the minimum tax. The booklet warns that "the fact that an S corporation does not have similar schedules on the federal form should not be considered as a relief for an S corporation." There is no DC election to make and no way to opt out. Shareholders are protected from a second layer of DC tax by D.C. Code § 47-1803.02(a)(2)(P), which excludes a shareholder's pro rata share of S corp income "to the extent that the portion of the income so excluded is directly or indirectly reported by and taxed against any person under the provisions of this chapter" — claimed on the D-40 as "Income reported and taxed this year on a DC franchise or fiduciary return."
Tax the entity still owes
RATE: 8.25% of "district taxable income" (D.C. Code § 47-1807.02, rate in effect for taxable years beginning after December 31, 2017; OTR's published rate table shows 8.25% for 2024 and 2025). MINIMUM TAX: $250 if DC gross receipts are $1,000,000 or less; $1,000 if DC gross receipts are greater than $1,000,000. Computed on the Minimum Tax Liability Gross Receipts (MTLGR) worksheet: numerator of the DC sales apportionment factor from Schedule F, plus adjusted basis of property sold, etc. Gross receipts are determined WITHOUT deduction of any expenses. Corporations are not exempt from the minimum tax even if their income is otherwise exempt under other DC Code provisions. DUE DATE: 15th day of the 4th month after the tax year closes — April 15, 2026 for tax year 2025. Extension on Form FR-120 (extension of time to file only, not to pay). ESTIMATED TAX: Form D-20ES required if DC franchise tax liability is expected to exceed $1,000; 2026 vouchers due April 15, June 15, September 15 and December 15, 2026 (15th day of the 4th, 6th, 9th and 12th months of the taxable year). Underpayment interest 10% per year compounded daily; safe harbor is 90% of the 2026 liability or 110% of the 2025 liability. SPORTS FACILITIES FEE: entities with $5,000,000 or more in annual DC gross receipts must file and pay Form FR-1500 electronically. NEW FOR TY2025: under OTR Tax Notice 2025-01, certain filers must submit an electronic copy of their federal return with the DC return. NOTE ON D-30: the Unincorporated Business Franchise Tax (Form D-30, also 8.25% with the same $250/$1,000 minimums) applies to unincorporated businesses; an LLC that has elected S corporation treatment federally is classified as a corporation and files D-20, not D-30.
Registering for payroll
Register once at MyTax.DC.gov using Form FR-500, Combined Business Tax Registration Application. FR-500 establishes the DC Office of Tax and Revenue employer withholding account AND supplies the DC Department of Employment Services (DOES) with the ownership, location and business-type information it needs to determine the employing unit's liability for DC unemployment taxes. Note that OTR no longer automatically registers businesses for Corporation or Unincorporated Franchise Tax from the D-20/D-30 returns — all new entities MUST register at MyTax.DC.gov through the business registration process. DC employers are also subject to the Universal Paid Leave (Paid Family Leave) employer contribution administered by DOES, reported alongside UI wages. Separately, the entity must register with the DC Department of Licensing and Consumer Protection (DLCP) and, in most cases, obtain a Basic Business License.
Annual filings
Form D-20, Corporation Franchise Tax Return — calendar-year filers due April 15 (April 15, 2026 for TY2025); fiscal-year filers the 15th day of the 4th month after year end; next business day if the due date falls on a weekend or legal holiday. Form FR-120 extension request, filed no later than the return due date, with payment. Form D-20ES estimated vouchers (April 15 / June 15 / September 15 / December 15). Form D-2220 if underpayment of estimated franchise tax. Form FR-1500 Sports Facilities Fee if DC gross receipts are $5 million or more. Schedule UB for consolidated business credits. Employer withholding returns and annual reconciliation with W-2s filed through MyTax.DC.gov; DOES quarterly UI wage and contribution reports. BRA-25 Two-Year (Biennial) Report with DLCP — first report due April 1 of the calendar year following registration, then April 1 every two years thereafter. Basic Business License renewal.
Pass-through entity tax
The District has NOT enacted its own pass-through entity tax. The 2025 D-20 booklet contains no PTET provision, form, line, or credit, and OTR has published no DC PTET form. This is structurally consistent — DC already taxes pass-through entities at the entity level through the D-20/D-30 franchise taxes, so a SALT-cap workaround election would be redundant. IMPORTANT RELATED TRAP: OTR Tax Notice 2022-03 (March 31, 2022) addresses OTHER states' PTETs. D.C. Code § 47-1806.04(a) allows a DC resident a credit only for "the amount of individual income tax such individual is required to pay and, in fact, has paid" to another state. DC residents therefore may not claim the DC out-of-state credit for a franchise tax, license tax, excise tax, unincorporated business tax, occupation tax, or any tax so characterized by the other jurisdiction — which includes most state PTETs. A DC resident who owns an S corp that elects PTET in Maryland or Virginia can lose the DC credit for that tax.
The mistake owners make most often in District of Columbia
Filing your federal Form 2553
Businesses operating in District of Columbia send Form 2553 to the IRS Kansas City service center — fax 855-887-7734. Full address and filing checklist for District of Columbia.
Frequently asked questions
Does District of Columbia require a separate S-corporation election?
No. District of Columbia does not require a separate state election. DC does NOT recognize S corporation status. The 2025 Form D-20 instruction booklet (revised 11/2025) states flatly: "For District tax purposes, S corporations, including Qualified Subsidiaries (Q-Subs), are C corporations." Every S corporation carrying on a trade or business in…
What tax does an S corporation pay in District of Columbia?
DC Corporation Franchise Tax on Form D-20 at 8.25% of DC taxable income, with a hard minimum tax of $250 (DC gross receipts $1M or less) or $1,000 (DC gross receipts over $1M) — payable by every S corp regardless of federal pass-through status.
Where do I file Form 2553 from District of Columbia?
With the IRS Kansas City service center. Fax 855-887-7734, or mail to Department of the Treasury, Internal Revenue Service, Kansas City, MO 64999.
What is the most common S-corp mistake in District of Columbia?
Believing the federal S election saves DC tax — and then running the classic low-salary/high-distribution strategy, which actively BACKFIRES in DC. Because DC treats the S corp as a C corp on Form D-20, officer compensation is a deductible entity-level expense. Every dollar the owner does NOT take as W-2 salary stays in DC taxable income and gets taxed at 8.25% at the entity level. So the federal reasonable-compensation optimization (minimize salary) directly increases the DC franchise tax bill. Owners also routinely fail to file D-20 at all — believing pass-through status means nothing is owed — and then get assessed the $250 or $1,000 minimum tax plus penalties for every open year, since the minimum tax is due even with zero or exempt income. Second-order trap: a DC resident cannot claim the DC out-of-state credit for another state's PTET (OTR Tax Notice 2022-03).
Compare with other states: Florida, Georgia, Hawaii, Idaho, Illinois, Indiana.
Sources
- https://otr.cfo.dc.gov/sites/default/files/dc/sites/otr/publication/attachments/2025_D-20_Book_Final_wLinks_02272026.pdf
- https://otr.cfo.dc.gov/page/dc-business-franchise-tax-rates
- https://code.dccouncil.gov/us/dc/council/code/sections/47-1807.02
- https://code.dccouncil.gov/us/dc/council/code/sections/47-1803.02
- https://otr.cfo.dc.gov/sites/default/files/dc/sites/otr/publication/attachments/OTR_NOTICE_2022-03_State_Credit_for_PTET_3_31_2022.pdf
- https://otr.cfo.dc.gov/sites/default/files/dc/sites/otr/publication/attachments/2026_D20ES_Book_wLinks03272026.pdf
File your Form 2553 correctly
Scorply completes your federal election and includes a District of Columbia guide in your packet, so you know exactly what else you owe here.
Start my Form 2553Researched from official District of Columbia sources and verified July 30, 2026. State tax rules change. This is general information, not tax advice — confirm with the state or a CPA before you rely on it.