Late S-Corp Election for Contractors: How to Get Relief

Contractors who miss the March 15 S-corp election deadline can generally still get relief: under Rev. Proc. 2013-30, a late election is allowed within 3 years and 75 days of the intended effective date, provided the missed Form 2553 was the only defect and reasonable cause exists. Without relief, a missed deadline pushes the election to the following year.

The good news: most contractors who missed the deadline qualify for relief, and the IRS process for getting it has become reasonably straightforward.

Why Do Contractors Miss the S-Corp Election Deadline?

Contractors typically discover the S-corp election opportunity after the fact — a CPA files a return, sees high SE tax, and mentions that an S-corp election could have saved $15,000–$25,000. Or a colleague mentions they’re running their contracting business through an S-corp. By the time you’re researching the option, it’s usually summer or fall — months past the March 15 deadline.

The other scenario: you formed an LLC in the middle of the year intending to make the election, but the 2 months and 15 days window passed before you got the paperwork filed.

Either way, the question is: can you get the election for the current year?

What Are the Requirements Under Revenue Procedure 2013-30?

Rev. Proc. 2013-30 allows a corporation or LLC to make a late S-corp election and have it treated as timely if four conditions are met:

1. The entity failed to qualify as an S-corp solely because Form 2553 was not timely filed. This is the typical contractor situation — not a disqualifying error, just a missed deadline.

2. The entity intended to be an S-corp from the intended effective date. You must have been operating as if you were an S-corp. For contractors, this means: you were treating yourself as the only shareholder, you intended to elect from the beginning of the tax year (or the date of formation), and you haven’t done anything structurally inconsistent with S-corp status.

3. The entity has reasonable cause for the failure to file timely. This is interpreted broadly. Being new to business, relying on a prior accountant who didn’t advise you, or simply being unaware of the deadline typically qualifies. You don’t need a dramatic excuse.

4. The entity files the late election within the applicable period. The election must generally be filed within 3 years and 75 days of the intended effective date (for situations where no return has been filed) or by the due date of the first affected return (in some circumstances).

How Do You File a Late S-Corp Election?

Form 2553 — the S-election form itself — includes a section for late elections with a “reasonable cause” explanation. You complete the form, attach an explanation of why the election wasn’t timely filed, and sign it.

The CPA also needs to:

• File the S-corp return (Form 1120-S) for all affected periods
• File amended individual returns if necessary
• Set up retroactive payroll to establish a reasonable salary for the period the election covers

The retroactive payroll requirement is critical. If the late election is approved and treated as effective January 1 of the current year, you need to have paid yourself a reasonable salary through the year. If it’s October and you’ve taken no salary, you need to run retroactive payroll for the January–September period. This means payroll taxes, W-2s, and proper documentation — not just a paper entry.

What If the Entity Has Already Filed as a C-Corp or Partnership?

If you accidentally filed a corporate return as a C-corp rather than electing S-corp status, the relief process is similar but slightly different — often handled via a private letter ruling (PLR) request if Rev. Proc. 2013-30 doesn’t apply. PLRs are more expensive (IRS user fee alone is $30,000) and slower. Avoid this by addressing the issue before a C-corp return is filed.

Is the Late Election Worth the Hassle?

The late election relieves future SE tax on distributions — but for the period before the election became retroactively effective, you’re recharacterizing income that already incurred SE tax. You don’t get that back.

The value of a retroactive late election is in the future tax savings, not a refund of past SE tax.

If the election is approved as effective January 1 and it’s now October, you get 3 months of SE tax savings for the current year, plus all future years. The administrative cost of the late election (CPA time, payroll setup) is typically $2,000–$5,000 — which you may recover in the first year or two.

If income supports the election ($90,000+ in net profit), the NPV of future savings almost always exceeds the one-time late-election administrative cost.

S-corp election analysis for contractors — whether the election is net positive at your income level.

This article is educational. Consult a licensed CPA for advice specific to your situation.