Known as the “Keystone State,” Pennsylvania is the birthplace of democracy in the United States. This state also introduced many firsts — from the first university to the first hospital. With a foundation rooted in innovation and entrepreneurial spirit, Pennsylvania continues to provide a supportive business landscape for companies of all sizes.
Forming an S corporation (S corp) in Pennsylvania can provide many benefits for your business, including a significant savings at tax time. This guide covers everything you need to know about forming an S corp in Pennsylvania as well as what you must do to keep it in good standing with the state.
Not in Pennsylvania? Check out our other How to Start an S Corp guides to learn more.
We recommend using a professional formation service like Tailor Brands to get your S corp up and running in no time.
Factors to Consider Before Starting an S Corp in Pennsylvania
Before forming an S corp, you have to consider the following factors:
- Is an S corporation the best strategy for your business?
- S corporation restrictions
- Are S corp tax advantages right for you?
Is an S Corporation the Best Strategy for Your Business?
For help with choosing the right structure for your business, visit our Choosing a Business Structure guide.
S Corporation Restrictions
S corps have several restrictions, such as being limited to one class of stock and 100 shareholders. Read our What Is an S Corporation guide for full details.
Are S Corp Tax Advantages Right for You?
An S corporation is a tax designation that can be elected by an LLC or corporation. With an S corp, business owners are considered employees of the company and must receive a reasonable salary. Since all S corps technically have employees, the s corp must run payroll.
In order to benefit from a Pennsylvania S corp tax designation, your business needs to make enough money to offset payroll expenses. Furthermore, S corps are beneficial for business owners who take large distributions in addition to their salary.
How to Form a Pennsylvania S Corp
There are two main ways to start an S corp:
- By forming an LLC and electing S corp tax status from the IRS when you request your employee identification number (EIN)
- By forming a corporation and electing S corp status from the IRS
We recommend forming an LLC because it’s simpler and more cost-effective.
Recommended: If you have an existing LLC, visit our How to Convert an LLC to S Corp guide.
Steps for Forming an LLC and Electing S Corp Status in Pennsylvania
Starting a Pennsylvania LLC and electing S corp tax status is easy. You can use our guides to start an LLC with the S corp status yourself, or you can hire a service provider like Tailor Brands to guide you through this process.
There are five basic steps to start an LLC and elect S corp status:
Step 1: Name Your LLC
Step 2: Choose a Registered Agent
Step 3: File the Certificate of Organization
Step 4: Create an Operating Agreement
Step 5: Get an EIN and File Form 2553 to Elect S Corp Tax Status
Step 1: Name Your LLC
Choosing a company name is the first and most important step in starting your LLC in Pennsylvania.
Be sure to choose a name that complies with Pennsylvania naming requirements and is easily searchable by potential clients.
1. Follow the naming guidelines for a Pennsylvania LLC:
- Your name must include “company,” “limited,” or “limited liability company;” an abbreviation of one of those terms; or words or abbreviations with the same meaning.
- Your name cannot include any words implying that it is a business corporation, such as “corporation” or “incorporated” or an abbreviation of these terms.
- Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
- You may need approval from the Bureau of Professional and Occupational Affairs, the Department of Education, the Department of Banking and Securities, the Insurance Department, or the Public Utility Commission to include certain restricted words.
- Your name must be distinguishable from any existing business in the state. This includes Pennsylvania reserved names.
You can also read the Pennsylvania state statute about LLC naming guidelines for more information.
2. Is the name available in Pennsylvania? Make sure the name you want is available by doing a business entity search on the Pennsylvania Department of State website.
3. Is the URL available? We recommend checking to see if your business name is available as a web domain. Even if you don't plan to create a business website today, you may want to buy the URL in order to prevent others from acquiring it.
Find a Domain Now
Step 2: Choose Your Pennsylvania Registered Agent
You must choose a registered office, also known as a registered agent, for your Pennsylvania LLC.
An LLC registered agent will accept legal documents and tax notices on your LLC's behalf. You will list your registered agent when you file your LLC's Certificate of Organization.
Many business owners choose to hire a registered agent service. Many of these services will form your LLC for a small fee and include the first year of registered agent services for free.
Step 3: File the Pennsylvania LLC Certificate of Organization
The Pennsylvania Certificate of Organization is used to officially register an LLC.
OPTION 1: File Online With Pennsylvania Business One-Stop Shop
- OR -
OPTION 2: File by Mail or in Person
State Filing Cost: $125, payable to the Commonwealth of Pennsylvania (Nonrefundable)
Pennsylvania Department of State
Bureau of Corporations and Charitable Organizations
P.O. Box 8722
Harrisburg, PA 17105
Department of State
401 North St., 206 North Office Building
Harrisburg, PA 17120
Note: A Docketing Statement must be included when filing a Certificate of Organization.
Step 4: Create an LLC Operating Agreement
An LLC operating agreement is a legal document that outlines the ownership and member duties of your LLC.
For more information, read our Pennsylvania LLC Operating Agreement guide.
Our operating agreement tool is a free resource for business owners.
Step 5: Get an EIN and Complete Form 2553 on the IRS Website
An EIN is a number that is used by the US Internal Revenue Service (IRS) to identify and tax businesses. It is essentially a Social Security number for a business.
EINs are free when you apply directly with the IRS.
Elect S Corp Tax Status
During the online EIN application, the IRS will provide a link to Form 2553, the Election By a Small Business form.
Visit our Form 2553 Instructions guide for detailed help with completing the form.
This is the form to elect S corp tax status for your LLC:
Ready to start saving on your taxes?
We recommend using a formation service to start your Pennsylvania S corp for you, so you can focus on the things that matter most — growing your business.
Keep Your Pennsylvania S Corp Compliant
After you obtain S corp status for your Pennsylvania business, you’ll want to ensure you keep it in good standing. That’ll require following state and local laws, staying current on all applicable taxes, and filing annual reports.
Pennsylvania S Corp Decennial Report
The previous decennial report requirements for Pennsylvania business entities were repealed in November 2022. Starting in 2024, business entities (including those taxed as S corps) will be required to submit an annual report to the Department of State along with a $7 filing fee.
Pennsylvania S Corp Taxes
S corporations benefit from pass-through taxation, meaning the business’s profits pass-through to S corp owners’ individual tax returns. S corp owners make money from their reasonable salary and distributions, and Pennsylvania S corp owners can expect to pay the following taxes:
Federal Self-Employment Taxes
Self-employment taxes cover social security and medicare. The self-employment tax rate is 15.3%, and money you take as salary will be subjected to the self-employment tax. However, distributions are not subjected to this tax.
Federal Income Taxes
Your federal income taxes will depend on your tax bracket, and the cutoffs for individual tax brackets as well as the percent owed will change each year. Both your salary and distributions are subjected to federal income tax.
Pennsylvania Income Taxes
Pennsylvania has a state income tax rate of 3.07% — one of the lowest in the eastern United States. A low state income tax rate can help businesses save money on taxes and allow you to reinvest your earnings into growing your company.
Pennsylvania Sales and Use Tax
Pennsylvania’s sales and use tax rate is 6%. Purchases made in Allegheny County have an additional sales tax of 1% while purchases in Philadelphia have an additional sales tax of 2%. For more information on the state’s sales and use tax, visit the Pennsylvania Department of Revenue website.
Additional State Taxes
The Pennsylvania Department of Revenue also provides details on the many state-specific taxes that may apply to your business. Some examples of additional taxes your business may need to pay in Pennsylvania include:
- Wine Excise Tax
- Cigarette Tax
- Medical Marijuana Gross Receipts Tax
- Motor and Alternative Fuel Tax
- Hotel Occupancy Tax
Visit the Pennsylvania Department of Revenue website for more information.
Pennsylvania Local Taxes
Whether you plan to open your business in one of the state’s major metropolitan cities, such as Philadelphia or Pittsburgh, or in a smaller city, borough, or township, it may have to pay local taxes. Check with your local government to ensure your business complies with local laws.
Start a Pennsylvania S Corp FAQ
What is an S corp?
An S corporation (S corp) is a tax designation that an LLC or a corporation can elect.
Are taxes for LLCs and S corps the same?
No. The default taxes for an LLC and taxes for an S corp are not the same.
With an S corp, owners pay personal income tax and self-employment tax on a predetermined salary. They may then withdraw any remaining profits from the business as a “distribution,” which isn’t subject to self-employment tax.
With an LLC, all company profits pass through to the owners’ personal tax returns, and then the owners must pay personal income tax and self-employment tax on the entire amount.
What is a reasonable salary for an S corp?
S corp owners are required to earn a “reasonable” salary, which basically means a fair market rate based on the individual’s qualifications as well as their duties and responsibilities at the company. The purpose of this requirement is to prevent S corp owners from paying themselves an artificially low salary in order to pay less self-employment tax.
What is a distribution?
A distribution is a dividend that a shareholder/owner can take from the business profits that remain after a company pays all of its employee salaries. Shareholders must pay personal income tax on distributions, but distributions aren’t subject to self-employment tax.
Can I still use my DBA name if I elect to be an S corp?
LLCs and corporations that operate under a “doing business as” (DBA) name can choose the S corp election.
What kind of Pennsylvania businesses can register as S corps?
You can form a business and elect S corp status for it within a range of major industries in Pennsylvania. Whether you launch a business in the manufacturing, energy, scientific, medical, or technology sectors — or start a small retail shop or restaurant – the S corp tax designation can help you save money come tax season.
Is Pennsylvania a good state for an S corp?
With its low income tax rate, affordable cost of living, and many business incentives and credits, Pennsylvania is an attractive location for entrepreneurs looking to save money on their tax bills by starting an S corp.