The NJ S-Corp Election Trap: Why Many Owners Are Still Taxed as C-Corps
- Gregory Monaco, CPA
- Dec 31, 2025
- 3 min read
Last Updated: December 31, 2025
Quick Summary
TL;DR: Most NJ owners assume that filing a federal S-Corp election automatically makes them an S-Corp in New Jersey. That's only partially true—and if the entity predates December 22, 2022, there's a real chance NJ has been taxing it as a C-Corp without anyone realizing. This is one of the most common (and expensive) issues we clean up for Essex County owners.
The December 22, 2022 Dividing Line
New Jersey's treatment of S-Corp elections changed dramatically with P.L. 2022, c.133:
Entities formed on or after December 22, 2022: NJ automatically accepts your federal S-Corp election. No separate NJ filing required.
Entities formed before December 22, 2022: You needed a separate NJ S-Corp election—and many never filed one.
The result? Thousands of NJ business owners believe they're S-Corps but are actually being taxed as C-Corps at the state level.
How to Confirm Your NJ S-Corp Status (Quick Test)
You should see:
NJ CBT-100S filings (not CBT-100)
DORES registration as an 1120S filer
Jurisdictional Consent forms on file
Ownership in BOI that matches the CBT structure
No "C-Corp" withholding or minimum tax anomalies
If you've been filing CBT-100 instead of CBT-100S, you never had NJ S-Corp status.
The Retroactive Relief Option: Form CBT-2553-R
Good news: NJ offers retroactive S-Corp election through Form CBT-2553-R.
Filing Window | Fee | Notes |
Within 12 months of due date | $100 | Straightforward approval |
12-36 months past due date | $100/year (max $300) | Requires explanation |
More than 36 months | $100 + written request | Division discretion applies |
The fee is modest compared to the tax difference between C-Corp and S-Corp treatment.
When to Use the Hybrid Election (S-Corp Federal / C-Corp NJ)
NJ now allows "hybrid" status where you're an S-Corp federally but a C-Corp for NJ purposes. This helps when:
The entity has NJ-specific NOLs you want to use
You're targeting NJ-only corporate credits
Multi-state apportionment creates a NJ-heavy income issue
You want cleaner NJ compensation vs distribution treatment
Pro Tip: Hybrid elections require 100% shareholder consent and must be made by the due date (including extensions)—not after.
Related: NJ BAIT Election Guide
NJ S-Corp Minimum Tax Table (2025)
NJ Gross Receipts | Minimum Tax |
Less than $100,000 | $500 |
$100,000 - $250,000 | $750 |
$250,000 - $500,000 | $1,000 |
$500,000 - $1,000,000 | $1,500 |
$1,000,000+ | $2,000 |
If you're paying more than these amounts as "corporate tax," you may have a classification problem.
The 2026 Enforcement Reality
Why this matters more than ever in 2026:
IRS AI enforcement: The IRS now cross-matches BOI filings against K-1 ownership and CBT classifications
BOI mismatches: Any discrepancy between your federal S-Corp election, BOI filing, and NJ CBT treatment creates automatic audit flags
BAIT complications: If your entity isn't properly recognized as an S-Corp in NJ, BAIT elections may be invalid
FAQ
Q: How do I know if my old LLC was ever treated as an S-Corp in NJ?
Check your prior CBT filing history—if you've been filing CBT-100 instead of CBT-100S, you never had NJ S-Corp status.
Q: Can I fix this retroactively?
Yes. File Form CBT-2553-R with the appropriate fee. For entities more than 36 months past the deadline, include a written explanation of reasonable cause.
Q: What if I want to be an S-Corp federally but a C-Corp in NJ?
This is the "hybrid" election. It requires unanimous shareholder consent and must be made by the return due date.
Your Next Steps
Pull your NJ CBT filing history from the Division of Taxation portal
Compare to federal 1120-S filings for the same years
If there's a mismatch, evaluate CBT-2553-R filing
Consider BAIT implications before making changes
Update BOI if ownership structure doesn't match current filings
Schedule a consultation to verify your S-Corp status before filing season.
Related Resources
Gregory Monaco is a CPA and MBA specializing in small business taxation and S-Corp planning, serving business owners throughout Essex County from Livingston, NJ.
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