I own an s corp & pay myself a $60k salary. Do I pay self employment tax out all the income, or just the $60k?
Anne edited the following
Question: I own an s corp & pay myself a k salary. Do I pay self employment tax out all the income, or just the k?
In other words, my company makes about 1.2 million a year. I own it, and am the only employee. Do I have to pay self employment tax, and social security out of the full 1.2 mil or just out of the k I pay myself?
ANSWER:
Answer by Marc
Hi Again Melissa:
The ,000 wage amount would show up on a W-2 slip, issued to you by the corporation. This amount is subject to FICA. The remaining activity of the S corp. shows up on the K-1 slip (no FICA on this amount).
The figures on both slips are reflected on the Form 1120-S corporate return as well as your own 1040.
Answer by the tax lady
K out of ,200,000 is likely to flunk a payroll audit.
BTW, HR 4213 (which hasn’t been signed yet) would make the entire amount subject to fica (capped at 6K) and medicare (uncapped). How the IRS would implement this would be unknown. The government never intended for S-corps to be a legal loophold out of paying fica/mc on all of your income.
Answer by RUSerious
Personally, I would suggest that you speak to your attorney regarding this situation. I also think that this is something that should have been discussed prior to commencing business.
Is 2010 your first year in business? If not, how have you handled it in the past?
Answer by Helen, EA in PA
Tax Lady – how do you know if he is a PSB or not? Your answers have not been quite up to par lately.
OP – you may be low on your salary, depending on the kind of work and what you would pay for someone else to do it.
Be careful, if you don’t pass the smell test, IRS will reclassify your S-corp to a Sch C. Please see your tax professional for details on this and whether you are a personal service business or not.
Helen, EA in PA
Answer by daoco
If you are smart enough to make .2 million per year I can’t believe you don’t have professional help hired to address this very simple question.
Answer by tro
S corps are generally treated as partnerships and if you are the only member of this s corp, this is not eligible for s corp
partnerships flow thru the profit to their partners who in turn report their K(1) income on Sch C and SE and pay their own sE tax, approx. 15.3% of the Sch c net
if you are as you say the only employee(and I think this is all wrong) the s corp pays you like any other employee, the employer portion of employee taxes
Know better? Leave your own answer in the comments!
