Can I Live in a Different State Than My S Corp?

It is possible for an S corporation owner to live in a different state than where the business is incorporated. This arrangement, however, creates legal and tax obligations in both states. Navigating this situation involves corporate registration, entity-level taxation, payroll, and personal tax considerations to ensure you and your S corp remain in good standing.

Establishing a Legal Presence in Your New State

When you, as the owner-employee of your S corp, begin working from a new state, you are considered to be “transacting business” there. This activity triggers a requirement to register your S corporation in your new state of residence through a process known as foreign qualification. Foreign qualification grants your S corp the authority to operate in a state other than its state of incorporation; it registers your existing company as a “foreign” entity. Failing to qualify can lead to penalties, fines, and the inability to bring a lawsuit in that state’s courts.

The first step is to obtain a Certificate of Good Standing from your S corp’s original state of incorporation, which proves your corporation is compliant there. You will also need to appoint a registered agent with a physical address in the new state to receive official documents. You will then file an “Application for Certificate of Authority” with the new state’s Secretary of State. This application requires information such as the corporation’s legal name, state of incorporation, principal office address, and registered agent details. Filing fees for this registration vary by state but often range from $100 to $300.

Navigating Corporate State Tax Filings

Establishing a physical presence by working in a new state creates “tax nexus” for your S corporation. Nexus is a connection that gives a state the right to impose taxes, and having an employee working there is a clear way to establish it. This means your S corporation will have tax obligations in both its state of incorporation and your new state of residence.

In the state of incorporation, you must continue to meet all original filing requirements, which may include annual reports and franchise taxes. Franchise taxes are levied for the privilege of being incorporated in that state. In your new state of residence, the S corp may be subject to its own entity-level taxes. While S corporations are pass-through entities for federal income tax, some states impose a corporate income tax, a minimum tax, or a gross receipts tax directly on the S corporation itself.

Managing Payroll and Employee Withholding

As an owner who provides services to your S corporation, the IRS requires you to be treated as an employee and receive reasonable compensation. When you work from a new state, your wages become subject to the payroll tax laws of that state, not the state of incorporation. The corporation must therefore comply with the new state’s rules for withholding and remitting payroll taxes.

The first step is for the S corporation to register as an employer with the new state’s tax agency. This involves obtaining a state withholding account number and registering with the state’s unemployment insurance agency to pay State Unemployment Tax Act (SUTA) taxes. Once registered, the S corporation must withhold state income tax from your salary according to the new state’s rules. These funds are then periodically remitted to the state, often on a quarterly basis, and the S corp will also pay SUTA taxes to the new state.

Filing Your Personal State Income Taxes

Your personal income tax filings are the final component. As the owner of an S corporation, the business’s profits and losses pass through to you on a Schedule K-1. You must account for this income, along with your employee wages, on tax returns filed in both your state of residence and the S corp’s state of incorporation.

You will file a resident income tax return in the state where you live, reporting all of your income from all sources. This includes your S corp salary and the pass-through income detailed on your Schedule K-1. Your resident state taxes your worldwide income, so the entirety of your S corp profits will be subject to tax in your home state.

Simultaneously, you will file a non-resident income tax return in the state where the S corporation is incorporated. This return is used to report the income specifically sourced from that state. To prevent double taxation, your resident state allows you to claim a “credit for taxes paid to another state.” Claiming this credit on your resident tax return reduces your tax liability by the amount of tax you paid to the non-resident state.