The NJ S-Corp Election Trap: Don’t Assume Your Federal Election Covers the State

I’ve seen this happen more than once: a business owner files Form 2553 with the IRS, files their federal return as an S-Corp, and then discovers that New Jersey never recognized the election. The result? NJ treats the entity as a C-Corp, which means double taxation at the state level.

How NJ Handles S-Corp Elections

New Jersey generally recognizes a valid federal S-Corp election, but NJ requires that the corporation file as an S-Corp on its NJ CBT-100S return and that all shareholders consent.

The Timing Issue

The federal S-Corp election must be filed within 75 days of the start of the tax year. The IRS does offer late election relief, but this must be properly documented.

What to Check

Confirm you received an IRS acknowledgment letter (CP261), check that your NJ CBT-100S is being filed correctly, ensure all shareholders signed the consent, and review that your NJ annual report reflects the correct entity classification.

How to Fix It

The IRS late election relief process is straightforward if you qualify. For NJ, you may need to work with the Division of Taxation. The key is catching it early.