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S-corp election in North Carolina

In short

North Carolina franchise tax on net worth: "$200 for the first one million dollars ($1,000,000) of the corporation's tax base and $1.50 per $1,000 (.0015) of its tax base that exceeds one million dollars," with an absolute minimum of $200 owed every year, even by an inactive corporation.

Does North Carolina recognize the federal S election?

North Carolina automatically recognizes the federal S election and gives you no choice in the matter. The 2025 CD-401S instructions are explicit: "There is no separate S election for North Carolina income tax purposes. There is no provision to elect a different filing method for State income tax purposes." Likewise on termination: "The S corporation election will terminate for North Carolina purposes at the same time and for the same taxable period the termination is effective for federal tax purposes." The entity files Form CD-401S. Recognition, however, does not mean no tax — NC imposes a franchise tax on the privilege of doing business "even though the activities are exempt from income tax under P.L. 86-272," with a $200 floor.

Tax the entity still owes

Franchise tax (2025 CD-401S instructions, Web 1-26): "Franchise tax is computed by applying $200 to the first one million dollars ($1,000,000) of the corporation's tax base. If the tax base exceeds one million dollars ($1,000,000), multiply the amount over $1,000,000 by.0015 and add $200. Franchise tax can be no less than $200." A holding company's franchise tax "is limited to an amount not to exceed $150,000." The tax base is net worth per Schedule C, measured "as of the end of the corporation's taxable year" from the book balance sheet, GAAP-based, with statutory adjustments for accumulated depreciation and certain affiliate indebtedness. Inactive corporations: "A corporation that is inactive and without assets is subject annually to a minimum franchise tax of $200. A return containing a statement of the status of the corporation is required to be filed. Failure to file this return and pay the minimum tax will result in suspension of the articles of incorporation or certificate of authority." Franchise tax is PREPAID (paid in advance at the beginning of the income year), so a corporation that dissolves mid-year is generally not subject to franchise tax for the following year. Qualified Subchapter S Subsidiaries "must file separate franchise tax returns." NC corporate income tax rate (relevant only if S status is lost) is 2.00% for 2026, down from 2.25% for 2025. Income tax applicable to composite filers and to Taxed S Corporations is the individual rate: 4.25% for 2025, 3.99% for 2026 and beyond.

Registering for payroll

(1) North Carolina Department of Revenue withholding account — register for a North Carolina withholding identification number through NCDOR (Form NC-BR, Business Registration Application). Employee elections are on Form NC-4. Deposits and returns are made on Form NC-5 (or NC-5P for semiweekly payers) per the assigned frequency, with Form NC-3 as the annual withholding reconciliation, filed through the eNC3 application along with W-2s and 1099s. (2) North Carolina Division of Employment Security (NC Department of Commerce) — state unemployment insurance account and quarterly tax and wage reports. Separately, the S corporation has its own withholding duty on nonwage compensation and on nonresident owners: "Nonresident Withholding. Enter the amount of tax withheld on behalf of a nonresident corporation for nonwage compensation during the taxable year on Line 20d."

Annual filings

Form CD-401S (S-Corporation Tax Return, combining franchise and income tax) — "The S corporation tax return is due on the 15th day of the fourth month following the close of the income year" (April 15 for calendar-year filers). Extension: "An extension of time to file the franchise and income tax return may be granted for seven (7) months if the extension application is received timely" — Form CD-419; an automatic federal extension gives an automatic state extension only if you "fill in the 'Federal Extension' circle on page 1 of Form CD-401S." NC K-1 (CD-401S) for each shareholder. Form CD-V payment voucher; CD-V Amended for amended returns. Form NC-PE if pass-through adjustments apply; Form CD-425 for tax credits; NC-478 for credits limited to 50% of tax. "A tax return is due annually as long as the corporation remains incorporated, domesticated, or continues to do business in this State." North Carolina Secretary of State annual report — "The business Corporation annual report is due to the Secretary of State's Office the 15th day of the fourth month following the entity's fiscal year end" (April 15 for calendar-year filers), $21.00 online or $25.00 paper. Withholding NC-5/NC-5P per frequency plus NC-3 annual. Quarterly NC DES unemployment reports.

Pass-through entity tax

Yes — the "Taxed S Corporation" (Taxed PTE) election. Per the CD-401S instructions: "All S corporations must fill in one circle answering either 'Yes' or 'No' to the Taxed S Corporation question on page 1 of Form CD-401S... If the S corporation does not answer 'Yes' to the Taxed S Corporation question, the S corporation is NOT a Taxed S Corporation for the tax year." And: "The Taxed S Corporation election is an annual election" — it must be affirmatively re-made every single year on the return. "A Taxed S Corporation pays the tax due on behalf of all shareholders," computed at the individual income tax rate (4.25% for 2025; 3.99% for 2026). Estimated tax: "a Taxed S Corporation is generally required to make estimated income tax payments if the Taxed S Corporation expects to have a N.C. income tax liability of $500 or more. An S corporation that did not make the election to be a Taxed S Corporation is not required to pay estimated income tax." Underpayment interest is computed on Form NC-429B PTE. Note: "Under N.C. law, an S corporation was not permitted to make the election to be a Taxed S Corporation prior to January 1, 2022." North Carolina's Taxed PTE regime is permanent state law and not written to sunset with the federal SALT cap.

The mistake owners make most often in North Carolina

The $200 minimum franchise tax is owed every single year no matter what — including by a corporation with no revenue, no assets, and no activity — and the consequence of ignoring it is not just a bill. The CD-401S instructions state: "A corporation that is inactive and without assets is subject annually to a minimum franchise tax of $200. A return containing a statement of the status of the corporation is required to be filed. Failure to file this return and pay the minimum tax will result in suspension of the articles of incorporation or certificate of authority." Owners who form an NC S corp, don't get the business off the ground, and quietly stop filing end up administratively suspended and owing accumulated minimum tax, penalties and interest. A close second, specific to the S election: the Taxed S Corporation election is an ANNUAL election made by filling in a circle on the return — practitioners and owners who made it once assume it carries forward, and a year where the circle isn't answered "Yes" silently drops the entity out of Taxed S Corporation status, losing the federal SALT deduction for that year with no way to fix it after the fact.

Filing your federal Form 2553

Businesses operating in North Carolina send Form 2553 to the IRS Kansas City service center — fax 855-887-7734. Full address and filing checklist for North Carolina.

Frequently asked questions

Does North Carolina require a separate S-corporation election?

No. North Carolina does not require a separate state election. North Carolina automatically recognizes the federal S election and gives you no choice in the matter. The 2025 CD-401S instructions are explicit: "There is no separate S election for North Carolina income tax purposes.

What tax does an S corporation pay in North Carolina?

Where do I file Form 2553 from North Carolina?

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 North Carolina?

Compare with other states: North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island.

Sources

File your Form 2553 correctly

Scorply completes your federal election and includes a North Carolina guide in your packet, so you know exactly what else you owe here.

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Researched from official North Carolina 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.