Getting an EIN: Personal Service Corporation vs. S Corp | Attorney Aaron Hall

Getting an EIN: Personal Service Corporation vs. S Corp

This article is for people wondering whether to select “S Corporation” or “Personal Service Corporation” when applying for an EIN on the IRS.gov website. Let’s assume you are in the process of setting up an S corporation to provide professional services (e.g. law firm or chiropractic office), and now you need an EIN number. You visit IRS.gov to get your EIN number, and you encounter the screen below.
IRS.gov EIN page: Personal Service Corporation vs. S Corporation
You wonder whether to pick “S Corporation” or “Personal Service Corporation.” The problem is you are both, and the IRS’s form doesn’t let you pick both options. The solution is simple: if you want to be taxed as an S corp, select “S Corporation,” not “Personal Service Corporation.” “Personal Service Corporation” is for those who want to be taxed as a C corporation.

Summary:

  • Pick “S Corporation” for a Personal Service Corporation that will elect to be taxed as an S corp.
  • Pick “Personal Service Corporation” for a Personal Service Corporation that will elect to be taxed as a C corp.

S Corporation

An “S Corporation” is the proper designation for a corporation that will elect S corp status even though it would otherwise qualify as a “Personal Service Corporation.”

Personal Service Corporation

“Personal Service Corporation” is the IRS’s term for personal service entities that will not elect S corp treatment. For example, a large law firm may select “Personal Service Corporation” because they want to take advantage of tax-efficient fringe benefits, flexibility in the distribution of profits, and more options for retirement savings. Being taxed as a C corp has tax consequences, so if you go that route, you will probably work with your CPA to pay owners as possible as “wages” (rather than “profit distributions”) to avoid double-taxation. Most small businesses will elect to be taxed as an S corp to minimize taxes.