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JRMW
Returning Member

S Corp (single shareholder) didn't pay wages in 2019

Single shareholder S Corp didn't pay themselves a wage in 2019. Thought they could just take a distribution. Now what?  How do they proceed?

7 Replies
Critter
Level 15

S Corp (single shareholder) didn't pay wages in 2019

 
Critter
Level 15

S Corp (single shareholder) didn't pay wages in 2019

It is way too late to make that correction now ... make sure 2020 is done correctly.  

KarenM90
Level 11

S Corp (single shareholder) didn't pay wages in 2019

Per IRS (see the link below) S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee. The amount of reasonable compensation will never exceed the amount received by the shareholder either directly or indirectly.   S Corp Compensation and Medical Insurance Issues

 

Assuming that the shareholder provides a service to the Corporation, for the S Corp to be in compliance, they could "gross up" the distributions taken in 2019,  to cover the required payroll taxes.

 

If they do this, the distribution plus the required taxes "withheld" would be considered 2019 wages.   The required State and Federal payroll tax returns would need to be filed, and the payroll taxes paid. 

 

In addition to the paperwork required, there would, of course, be penalties  and interest for failure to file and pay the payroll tax returns and remit the taxes on time, but this would bring them into compliance.  

 

 

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JRMW
Returning Member

S Corp (single shareholder) didn't pay wages in 2019

Thank you for your quick response. What does ""gross up" the distributions taken in 2019"" mean and how do they do that?  

DavidD66
Employee Tax Expert

S Corp (single shareholder) didn't pay wages in 2019

How much was the distribution?

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Anonymous
Not applicable

S Corp (single shareholder) didn't pay wages in 2019

you are between a rock and a hard place.  amending to take a "2019" salary and pay the payroll taxes now will probably result in substantial penalties and interest.   you could request that the IRS abate penalties (by law interest can't be abayted) but that is up to the IRS. the other problem is that your S-Corp income is overstated by the amount of salary you should have taken.   This can result in an overstated QBI deduction (1040 - line 10)  so you would have underpaid your income taxes.

 

 

i agree with Critter but you may want to consult a professional who can give you an opinion based on the numbers that are on the returns. 

 

Anonymous
Not applicable

S Corp (single shareholder) didn't pay wages in 2019

 
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