"What form do I use to pay federal taxes on s corp distributions during the year"

[Anonymous]

I am pretty sure I use form 1040-ES to pay taxes on s corp distributions. But then I realized the form also calculated social security and medicare, which I don't need to calculate that for an s corp distribution. Because only federal tax is required, Correct? Thanks for your time.

[Texas Roger]

If you’re filing as a self-employed individual or disregarded entity (i.e. single-member LLC, partnership, or S Corp shareholder), you should complete Form 1040-ES. This form contains blank vouchers for mailing your estimated tax payments. You can also make your payments using the Electronic Federal Tax Payment System (EFTPS). For your state payment, you have to search online for the appropriate form, complete it and send it in with your payment.

Corporations must submit their payments using EFTPS, or can arrange for a tax professional, financial institution, payroll service, or other trusted third party to make deposits on their behalf. Here is a link to EFTPS: https://www.eftps.gov/eftps/

[Critter]

Although an S-corp doesn't pay income taxes since the income is passed thru to the shareholders ... it is required to file payroll tax reports on it's employees and the shareholders are employees if they work for the company.

An S-corp can make distributions, but the rules are complex.

This article has a reasonably clear discussion of what is required: 

http://www.aicpa.org/Publications/TaxAdviser/2014/January/Pages/Nitti_jan2014.aspx

Also see the following IRS discussion: http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Stock-and-Debt-Basis

The IRS position is that an S-Corporation MUST pay a reasonable compensation to an officer before non-wage distributions may be made.  The reason is that they feel that non-wage distributions when no wages are paid is an avoidance of social security taxes.  From the IRS website at http://www.irs.gov/businesses/small/article/0,,id=203100,00.html :

"Reasonable Compensation"

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.

Distributions and other payments by an S corporation to a corporate officer must be treated as wages to the extent the amounts are reasonable compensation for the service rendered to the corporation.

Several court cases support the authority of the IRS to reclassify other forms of payments to a shareholder-employee as a wage expense and subject to employment taxes."

The page cites Joly vs. Commissioner, 211 F.3d 1269 (6th Cir., 2000) as one judicial finding on the IRS's authority to reclassify distributions to wages subject to employment taxes.  Factors to determine reasonable compensation are given in the ruling.

The AICPA has an interesting article on this topic here: http://www.aicpa.org/publications/taxadviser/2011/august/pages/nitti_aug2011.aspx

You also might want to read a lively discussion on the Tax Almanac website here: http://www.taxalmanac.org/index.php/Discussion_Forum_-_Tax_Questions .  The substance of the discussion seems to be that taking a reasonable salary is not optional and, if you took distributions with no salary, the distributions should be changed to salary with appropriate employment tax returns being filed (late, if necessary.) 

The fastest way to get audited as an S-Corporation is to not report wages to officers on page 1 of the return.

[Anonymous]

S-Corp distributions are not taxable as long as there is basis to support them.  you are taxed on your share of S-Corp income which can be substantially different from the distributions.  S-corp income is also not subject to SE taxes