The IRS requires S Corp shareholder-employees to pay themselves a reasonable employee salary, which means at least what other businesses pay for similar services. Basically, the IRS can recharacterize your distributions as salary and require payment of back payroll taxes and penalties.

How does payroll work for an S Corp?

Your S corp and you as an employee will each pay 7.65% of your salary in taxes for Social Security and Medicare payroll taxes. For example, if your salary is $50,000, then your company will pay $3,825 for these payroll taxes, and you will also pay $3,825 to those same tax categories over the course of the year.

Can an S Corp have no employees?

An S corporation is a special form of corporation, named after the relevant section of the Internal Revenue Code. It is taxed on a pass-through basis, meaning it doesn’t pay taxes in its own right. In principle, an S corporation can have no employees.

Why are S corporation owners required to run payroll?

Active s corporation owners are required to run payroll. One such compliance requirement for s corporations is the “reasonable salary” rule. The IRS says that s corp owner/operators must pay themselves as employees of their own company. This ensures that both the employee and the employer pays social security and medicare taxes.

Who is the sole owner of an S corporation?

An S corporation separates you from your company completely, for both operational and tax purposes. The business is its own entity, and you as the owner are the sole shareholder and an employee.

How much does S corporation pay in taxes?

Your corporation pays a 7.65% Social Security and Medicare payroll tax. If your S corporation pays you payroll of $10,000 a quarter, that amount equals $765 obviously. Calculating the employee’s payroll and income taxes You (the employee) also need to pay a 7.65% payroll tax as an employee.

How does a single owner of a corporation get paid?

A corporation’s single owner may choose to take assets from the business in several ways. He can receive a loan, take profits as a distribution and be paid a salary.