Guide · 2026 rules

S corp vs. C corp: taxed once or taxed twice

S corporations and C corporations are both corporations for federal tax. The difference is who pays the income tax, and how many times. A C corporation pays its own tax, and its owners pay again when profit is paid out. An S corporation passes its profit to its owners, who pay the tax once.

Updated October 24, 202612 official sources

In short

A C corporation pays a flat 21% federal tax on its profit, then owners pay tax again on dividends.
An S corporation pays no federal income tax of its own. Its profit is taxed once, on the owners’ returns.
Only certain owners can hold an S corporation: no more than 100, no companies or nonresident aliens, one class of stock.
An LLC can be taxed either way: Form 8832 to be taxed as a C corporation, Form 2553 to elect S status.

Two ways the IRS taxes a corporation

“S corp” and “C corp” are not different kinds of companies under state law. They are two federal tax treatments. A corporation is taxed as a C corporation unless it elects S status. An LLC can choose either one: it files Form 8832 to be taxed as a corporation, or Form 2553 to elect S status directly.

C corp: the business pays its own tax

The IRS treats a C corporation as a separate taxpaying entity. It figures its profit with generally the same deductions a sole proprietorship takes, and pays a flat 21% federal income tax on its taxable income. It files Form 1120, due the 15th day of the 4th month after its tax year ends.

Pay for work is a deduction. A salary paid to an owner who works in the business lowers the corporation’s profit, so that money is taxed once, as the owner’s wages, with payroll tax on it.

Then owners pay again on dividends

Profit left in a C corporation has already been taxed once. When the corporation pays it out as a dividend, the owners pay tax on it again. The corporation gets no deduction for the dividend. In the IRS’s words, “This creates a double tax.”

Dividends that are qualified dividends are taxed at the capital gain rates of 0%, 15% or 20%, depending on income. Other dividends are taxed as ordinary income. Above $200,000 of income ($250,000 married filing jointly), a 3.8% Net Investment Income Tax can apply on top. Here is $100,000 of C corporation profit paid out to an owner at the 15% rate:

Step	Amount
C corporation profit	$100,000
Corporate income tax (21%)	$21,000
Left to pay out as a dividend	$79,000
Owner’s tax on the dividend (15%)	$11,850
Total federal income tax on the profit	$32,850 (32.9%)

Shareholders also cannot deduct a C corporation’s losses on their own returns. A loss stays inside the corporation.

S corp: taxed once, on your own return

An S corporation passes its income, losses, deductions and credits through to its owners. The owners report them on their own returns, so the profit is taxed once. The S corporation files Form 1120-S, with a Schedule K-1 to each owner, but pays no federal income tax of its own.

An owner who works in the business takes a reasonable salary through payroll, and the rest of the profit can come out as distributions without Social Security or Medicare tax. How to pay yourself explains the split.

Side by side

	C corporation	S corporation
Who pays federal income tax on the profit	The corporation (21%), then owners on dividends	The owners, on their own returns
Profit paid out to owners	Taxed again as dividends (0%, 15% or 20%)	Not taxed again
Losses	Stay in the corporation	Pass through to the owners
Who can own it	No S-corporation limits	No more than 100 owners; individuals, certain trusts and estates; no companies or nonresident aliens
Classes of stock	Any	One
Federal return	Form 1120, due the 15th day of the 4th month	Form 1120-S, due the 15th day of the 3rd month
How to get it	The default for a corporation; Form 8832 for an LLC	Form 2553

Why some businesses stay C corporations

Owners an S corporation can’t have. A company, a partnership or a nonresident alien can own a C corporation, but not an S corporation.
More than one class of stock. An S corporation can have only one class, so a business that issues shares with different rights can’t be one.
Profit kept in the business. Profit a C corporation keeps is taxed at 21% until it is paid out. It is taxed a second time only when it reaches the owners.

For a one-owner business

Most one-owner businesses start as a sole proprietorship or a single-member LLC, and the question they face is whether to elect S status or stay as they are. What is an S corp? explains that choice, and the calculator compares the two with your own numbers and state. It does not model a C corporation.

See what the S election would do for your business.Profit, state and salary. Two minutes, nothing sent anywhere.

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Sources

Every figure was read on an official page and checked a second time. Checked October 24, 2026. How we check facts.

An explanation of public rules, not tax advice.

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