Recognized automaticallyPTET available

S-corp election in South Carolina

In short

No franchise tax on income, but a one-time CL-1 initial report fee applies, and the entity may elect to pay the 3% active trade or business income tax itself under § 12-6-545(G).

Does South Carolina recognize the federal S election?

South Carolina automatically recognizes your federal S election — there is no separate South Carolina S-corp election. Your S corp files Form SC1120S. South Carolina's distinctive feature is the "active trade or business income" election under S.C. Code § 12-6-545: pass-through business income that is NOT compensation for your personal services can be taxed at a flat 3% instead of the regular individual rates, and the entity itself can make that election and pay the tax.

Tax the entity still owes

ACTIVE TRADE OR BUSINESS INCOME (ATBI) RATE FOR 2026: 3%. S.C. Code § 12-6-545(B)(2) sets the rate by a table ending "after 2013 — 3 percent," and that rate is UNCHANGED for tax year 2026 — see the caveats for how this was proven. ENTITY-LEVEL ELECTION — § 12-6-545(G): a "qualified entity" (a partnership or S corporation, including an LLC taxed as either, where all owners are qualified owners) "may elect annually under this subsection to have its income taxed on its active trade or business income at the rate provided in subsection (B)(2) imposed on the qualified entity itself." The election must be made no later than the due date for filing the applicable income tax return, including extensions. A qualified owner then EXCLUDES that active trade or business income from South Carolina taxable income, provided the entity properly filed and paid. Under § 12-6-545(G)(6), the § 12-8-590 withholding on distributions to nonresident S corporation shareholders does NOT apply to electing qualified entities to the extent of the tax paid on active trade or business income. Under § 12-6-545(G)(7), for tax years beginning after 2021 an electing qualified entity must submit estimated tax payments pursuant to § 12-6-3910. WHAT DOES NOT QUALIFY — § 12-6-545(A)(1): passive investment income as defined in IRC § 1362(d) and related expenses, capital gains and losses, IRC § 707(c) guaranteed payments for services, and "amounts reasonably related to personal services." CRITICAL: all compensation and all § 707(c) guaranteed payments for services are DEEMED reasonably related to personal services; and if an owner who performs personal services is not paid a reasonable amount, ALL of that owner's income from the entity is PRESUMED to be personal-service income and therefore ineligible for the 3% rate. A safe harbor at § 12-6-545(E)(1) lets a taxpayer whose total South Carolina taxable income from pass-through entities for which he performs personal services is $100,000 or less (excluding capital gains and losses) elect to treat 50% of active trade or business income as not related to personal services. NEW 2026 INDIVIDUAL RATES — § 12-6-510(C) as amended by 2026 Act No. 110 (H. 4216): for taxable years beginning after 2025, $0 to $30,000 is taxed at 1.99% times the amount, and $30,000 or more at 5.21% times the amount minus $966, with brackets indexed under § 12-6-520. FUTURE REDUCTIONS: beginning with tax year 2027 the top rate decreases if individual income tax revenues (net of amounts credited to the Trust Fund for Tax Relief) are projected to grow by at least 5%, continuing until the top rate equals 1.99%, after which the 1.99% itself steps down toward zero on the same trigger. ALSO IN ACT 110: the state no longer adopts the federal standard/itemized deduction (§ 12-6-50), a new South Carolina Income Adjusted Deduction (SCIAD) is created (§ 12-6-1140), and the state earned income tax credit is capped at 125% of the federal EITC but "not to exceed two hundred dollars" (§ 12-6-3632).

Registering for payroll

An S corp paying wages must register for South Carolina income tax withholding with the SC Department of Revenue (MyDORWAY) and for unemployment insurance with the SC Department of Employment and Workforce. Note that Act 110 § 6 directs the Department of Revenue, in consultation with the Revenue and Fiscal Affairs Office, to ADJUST THE WITHHOLDING TABLES to reflect the act's changes — so 2026 South Carolina withholding tables differ from prior years.

Annual filings

Form SC1120S, South Carolina S Corporation Income Tax Return — due the 15th day of the third month after the close of the taxable year (March 15 for calendar-year filers). SC1120S Schedule K-1 to each shareholder. Form I-435, Active Trade or Business Income Reduced Rate Computation, if the 3% ATBI rate is used. Estimated tax payments under § 12-6-3910 if the entity makes the § 12-6-545(G) election. Form CL-1, Initial Annual Report of Corporations, with a $25 minimum fee, due within 60 days of doing business in South Carolina.

Pass-through entity tax

Yes — S.C. Code § 12-6-545(G) is South Carolina's entity-level pass-through election, and the 2026 rate is 3%. Because the new top individual rate for 2026 is 5.21% on income at or above $30,000, the 3% ATBI election remains meaningfully beneficial for qualifying income. But note the design: it only covers income NOT reasonably related to the owner's personal services, and if an owner-operator is not paid reasonable compensation, ALL of that owner's income is presumed to be personal-service income and loses the 3% rate. That interacts directly with the reasonable-compensation analysis an S-corp owner is already doing.

The mistake owners make most often in South Carolina

Blowing the 3% active trade or business rate by underpaying yourself. Under § 12-6-545(A)(1)(d), if an owner who performs personal services for the entity is not paid a reasonable amount as compensation or § 707(c) payments, then ALL of that owner's income from the entity is PRESUMED to be amounts reasonably related to personal services — which means none of it qualifies for the 3% rate and all of it is taxed at the ordinary rates, now up to 5.21%. The reasonable-compensation discipline that protects your federal S election is also what unlocks South Carolina's best rate. Note too that the presumption sweeps in amounts related to the personal services of the owner's spouse and any dependent claimed on the owner's return.

Filing your federal Form 2553

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

Frequently asked questions

Does South Carolina require a separate S-corporation election?

No. South Carolina does not require a separate state election. South Carolina automatically recognizes your federal S election — there is no separate South Carolina S-corp election. Your S corp files Form SC1120S. South Carolina's distinctive feature is the "active trade or business income" election under S.C.

What tax does an S corporation pay in South Carolina?

No franchise tax on income, but a one-time CL-1 initial report fee applies, and the entity may elect to pay the 3% active trade or business income tax itself under § 12-6-545(G).

Where do I file Form 2553 from South 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 South Carolina?

Compare with other states: South Dakota, Tennessee, Texas, Utah, Vermont, Virginia.

Sources

File your Form 2553 correctly

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

Start my Form 2553

Researched from official South 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.