Do shareholders of an S Corp pay self employment tax?
Hi,my name is Anne,I did the following:
Question: Do shareholders of an S Corp pay self employment tax?
Just trying to calculate my tax rate for this year. Do I pay income tax PLUS self employment PLUS state?
The following is the answer:
Answer by v b
The shareholder of an S-corp that does work for the S-corp gets a W-2. Fica/MC are withheld from that pay and matched by the corporation…so effectively the 15.3% *is* paid.
If you have failed to pay yourself a wage, you need to fix that IMMEDIATELY.
Answer by Anna
If you are an active employee of the S Corp, you get a W-2, and should have income tax, social security and medicare withheld.
If you are not an employee, but a passive shareholder, you are not subject to SE tax. The income from the S Corp is reported on a K-1 to you which is then reported on the second page of Sch E. The total of all K-1 passive income is carried to the front page of your 1040.
So, you pay regular income tax to both state and federal agencies on this S Corp income.
Good planning to be looking ahead now instead of April 15th!!!
Answer by superj300
Yes and no.
Part of the benefit of being an S-corp is that self employment tax doesnt apply on the EARNINGS of the corporation. However, as an S-corp, the owner(s) must pay a “reasonable salary” to themselves or risk facing penalties by the IRS via an audit…and normal employment taxes are due on these salaries. However, they should be withheld from your paychecks and reflected on your W-2, not added additionally to your 1040.
A reliable CPA firm can prepare a tax projection based on your year-to-date earnings and recommend strategies to lower your tax liability prior to year end. If you are interested in this, act soon to receive and enact this advice prior to 12/31.
Know better? Leave your own answer in the comments!
