New Jersey Adopts Important Changes
to S Corporation Election Requirements

Historically, in order for a federal S corporation to be recognized as an S corporation for New Jersey tax purposes, shareholders were required to make a separate New Jersey S corporation election. This requirement often took taxpayers by surprise, resulting in a continuous stream of requests for retroactive relief from taxpayers that failed to elect S corporation status in New Jersey.

New Law: Beginning January 1, 2023, no New Jersey S corporation election is required. A federal S corporation is automatically treated as a New Jersey S corporation, unless the corporation takes affirmative steps to opt out.  The new legislation provides the following provisions for “opting out” of S corporation status in New Jersey:

  • 100% of shareholders must consent to the opt out.
  • The opt out election may be made for any taxable year at any time during the preceding taxable year or at any time on or before the due date or extended due date of the S corporation’s tax return.
  • The opt out election will remain effective until revoked. Revocation requires the approval of shareholders holding more than 50% of the shares.

The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.