What happens when one has W-2 income (>160k) and 1099 income together in a year. I would like to know if S-Corp (using LLC) would be subjected to SocialSecurity tax

[arihantkkothari]

Fulltime job already maxes out social security taxes as a W-2 employee of XYZ company.

If I structure as an S-Corp, and pay myself some wages out of my 1099 income - would that income be subjected to social security taxes again?
As an employee of my S-Corp, I understand that I have already maxed out my Social security tax payment.

However, as an S-Corp employer, would I still pay social security taxes? Are those taxes ever refunded back to me?

[MinhT1]

If you have maxed out your SS tax on your outside job, your S-corp will still have to withhold SS tax (and pay the employer's share of SS tax).

You will then have 2 employers and at tax time, you will get a credit on your personal tax return if you have paid excess SS tax.

Please read this IRS document for more information.

[arihantkkothari]

Hello!

Thank you so much for your response. I really appreciate it.

I understand that I would be eligible to get refund on my "Employee" portion of Social Security taxes that my LLC/S-corp would pay to the IRS.

I read the link you've shared in your response, and it was very insightful. thank you for that.

I would still like to know that  for my S-corp, where I am also an "Employer" - Would I get refunded for those social security taxes as well?

[MinhT1]

The S-Corp as employer is not refunded for the employer's share of SS tax paid, but it is a deductible business expense for the S-Corp.

[arihantkkothari]

Hello,

I reached out to a payroll company (Gusto) and they told me that they could set up me in a way that they do not withhold social security taxes (for both me as an employee and me as an employer) when they run my payroll.

In that situation, when I file my taxes at year end, given I have already maxed out my social security taxes from my W2 job, shall I still be liable to pay social security taxes on my S-corp ( as an employer) at the time of tax return filing?

[SharonD007]

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[arihantkkothari]

Hi Sharon,

Thank you for your detailed response.

My W-2 job already maxes out social security taxes (wages > 160K).

I have an LLC on the side, and I am wondering if I should elect S-Corp tax status on my LLC.

If I pay out myself some wages (From S-Corp) -> I understand that I  (As an employee of my own S-Corp)  am not liable to pay social security taxes from my S-Corp W2 wages.

However, myself as an Employer (in my S-Corp) -> I am trying to figure out  if I need to pay social security taxes on the wages that I am paying myself (as an employee of S-Corp).

I checked with a payroll company, and they say that they can set up me in a way that no social security taxes are withheld (from both as an employeR and as an employeE).

However, the question is -> Am I really liable to pay social security taxes on the wages I am paying as an EmployeR?

Thank you!

[AliciaP1]

Yes, if you pay W-2 wages to an employee, even yourself, you are required to withhold Social Security taxes per Publication 15 from the IRS.  As @MinhT1 posted, you will get the refund of the excess tax as an employee and the business gets to deduct the expense for its share as a regular business expense.

You also need to be careful if you switch to reporting your LLC as an S-Corp because you will be required to pay yourself a "reasonable compensation" per the IRS.  Also see Should I pay myself a salary as an S-corp owner? for some more valuable information.

In my experience, I would not recommend working with a payroll company that is offering to work around the rules.

@arihantkkothari