- Effective for income tax periods beginning on or after January 1, 2026, S Corporations are no longer treated akin to C Corporations for Louisiana state income tax purposes.
- S Corporations are also now permitted to file composite returns.
Background
On June 20, 2025, the Louisiana governor signed legislation modifying the filing methodology for S Corporations. Prior to the enactment of H.B. 567, Louisiana law did not recognize Subchapter S Corporation status.
Louisiana Recognizes S Corporations as Pass-Throughs for Tax Periods Beginning January 1, 2026
H.B. 567 modifies the above treatment of S Corporations by automatically conforming to the federal income tax treatment of S Corporations. The legislation requires S Corporations to file an annual informational return of income, reporting each shareholder’s income attributable to Louisiana and the income not attributable to Louisiana. Both resident and non-resident shareholders will be required to report their share of the income, loss, deduction, and credits on their individual Louisiana income tax returns. The S Corporation’s items of income, loss, deduction, and credit taken into account by a shareholder are characterized as though received or incurred by the S Corporation and not its shareholder.
Forvis Mazars Insight: S Corporations were historically treated as C Corporations for Louisiana income tax purposes. S Corporations filed the Louisiana corporate income tax return and excluded a percentage of the net income that was attributable to Louisiana resident shareholders from the S Corporation’s taxable income. Any remaining income (e.g., non-resident shareholders’ income) was subject to the corporate income tax rate of 5.5%. Additionally, S Corporations that elected to pay tax at the entity level were subject to the corporate income tax rate of 5.5%. The bill effectively changes the applicable tax rate from the corporate rate of 5.5% to the individual rate of 3%.
Composite Returns
Beginning January 1, 2026, S Corporations may file composite returns and make composite payment of tax on behalf of any or all its nonresident shareholders. The composite payment of tax is calculated by multiplying the maximum tax rate provided for individuals or trusts and estates by the nonresident shareholder’s share of the S Corporation’s income attributable to Louisiana. Any amounts paid by the S Corporation to the state pursuant to a composite return/payment, will be considered amounts paid by the nonresident shareholder. Accordingly, any overpayment will belong to the nonresident shareholder, of which shareholder will be able to request a refund or apply the payment as a credit to subsequent tax periods.
Forvis Mazars Insight: As a result of the new composite return provision, nonresident shareholders will not be required to file Louisiana income tax returns when the only income from Louisiana sources is the shareholder’s share of the S Corporation’s income attributable to Louisiana for the taxable period and the S Corporation pays the tax on the shareholder’s behalf pursuant to the composite return.
How Forvis Mazars Can Help
S Corporations that are operating in Louisiana will have modifications to their filing methodologies for tax periods beginning January 1, 2026. We can assist you with navigating these new filing regimes to ensure the S Corporations and their shareholders are compliant.