08/08/2026
We are a full service office handling all the IRS requirements including payroll, bookkeeping and tax preparation for our businesses.
As an S Corporation owner, you must pay yourself a reasonable salary, withhold payroll taxes, and file necessary tax forms to comply with IRS regulations.
Reasonable Salary:
S Corporation owners who perform significant services for the business are required to pay themselves a reasonable salary. This salary should reflect what similar businesses pay for comparable roles. Factors to consider include the owner’s qualifications, the complexity of the business, and industry standards.
Payroll Taxes:
Owners must withhold and pay payroll taxes, including Social Security and Medicare taxes (F**A), from their salary. The total F**A tax rate is 15.3%, split equally between the employer and employee.
Additionally, owners must pay federal unemployment tax (FUTA) on the first $7,000 of their salary, and state unemployment taxes may also apply.
Tax Forms and Filing:
S Corporations must file Form W-2 for each employee, including the owner, to report wages and withheld taxes. This form must be provided to the employee by January 31 each year.
Quarterly payroll tax returns must be filed using IRS Form 941, which reports income taxes and F**A taxes withheld.
If the owner expects to owe more than $1,000 in taxes, they must make estimated tax payments using Form 1040-ES.
Distributions:
After paying a reasonable salary, any remaining profits can be taken as distributions, which are not subject to payroll taxes but are subject to income tax.
It is crucial to maintain a clear distinction between salary and distributions to avoid IRS scrutiny and potential penalties for underreporting income.
Recordkeeping:
Accurate records of payroll transactions, including salaries, taxes withheld, and distributions, must be maintained for compliance and reporting purposes.
By adhering to these payroll requirements, S Corporation owners can ensure compliance with IRS regulations while optimizing their tax obligations.
