topic Does a officer of a C Corporation have to report all compensation for payroll tax purposes? Or can a officer receive other forms of compensation? in Business & farm

Does a officer of a C Corporation have to report all compensation for payroll tax purposes? Or can a officer receive other forms of compensation?

cjprizes — Thu, 06 Jun 2019 10:29:31 GMT

Can part of the compensation of the Corporation officer be reported in another way as to avoid paying some of the payroll taxes?

Yes, according to the IRS website (Paying Yourself), "An...

RichardK — Thu, 06 Jun 2019 10:29:32 GMT

Yes, according to the IRS website (Paying Yourself), "An officer of a corporation is generally an employee, but an officer who performs no services or only minor services, and who neither receives nor is entitled to receive any pay, is not considered an employee."

Therefore, if the Officer receives compensation it is subject to employee payroll taxes.

However, unlike an S corporation, shareholders and officers are not required to be paid a reasonable minimum compensation.

Re: Yes, according to the IRS website (Paying Yourself), "An...

ZJZ — Wed, 29 Jan 2020 22:59:15 GMT

Hi, What if for a one-member c corp? Does the owner subject to w2 reasonable compensation which the c corp has no other employee?

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

ThomasM125 — Thu, 30 Jan 2020 23:46:39 GMT

As an officer/shareholder/owner of the corporation, you are required to pay yourself a reasonable wage if you are materially involved with the management or activities of the company.

Since it appears that you are running the business by yourself, you would have to pay yourself a salary, taking into consideration things like the net profit of the business and how much you distributed to yourself from the business in the current year.

If you are a C corporation, monies you withdraw from income that you do not report as compensation, either on a W-2 form or 1099-MISC, would be considered dividends and would taxable to you as such, but not deductible by the corporation. So, you would be doubled taxed on your distributions.

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

ZJZ — Fri, 31 Jan 2020 01:28:20 GMT

Thanks for the reply.One more followup question. Can I distribute the money as a dividend only without any compensation?

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

Anonymous_ — Fri, 31 Jan 2020 02:20:35 GMT

@ZJZ Unlike S corporations where the issue of being under compensated can arise, it is the opposite with C corporations; the focus is on over compensation since dividends are not deductible but salary and wages are deductible.

See https://www.journalofaccountancy.com/issues/2013/sep/20137412.html

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

cbfreeze — Sun, 12 Jul 2020 23:19:02 GMT

I am the sole owner of a C Corp and I run the corporation on my own. Do I need to put officer compensation? This is my first year therefore no payroll taxes were filed during the year as I was not aware of how the officer compensation works. Can I pay myself through 1099-MISC rather than a W2?

Since i did not do payroll taxes, what is the way to report any income to myself?

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

KristinaK — Wed, 15 Jul 2020 18:42:50 GMT

You have several options:

1) Calculate your reasonable salary and run the payroll for 2019 (filing Forms 94x, W-2, etc.). This will be messy and will mean penalties on late filing and payment of taxes.

2) You can issue yourself a 1099-MISC, report it on Schedule C of your personal return. This is not an ideal way of doing it. And really not the right way of doing it.

3) You can consider the payments to yourself as payment of dividends and report them as such. Or return of capital. Read more about it here. Without the salary, also not an ideal way to go.

If you did not pay yourself a compensation through payroll, you will not report anything on the line for "officer compensation".

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

AmeliesUncle — Wed, 15 Jul 2020 19:03:53 GMT

@cbfreeze wrote:
I am the sole owner of a C Corp and I run the corporation on my own.

You REALLY, REALLY need to be going to a good tax professional for the corporate return.

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

Rick23slash — Mon, 27 Jul 2020 12:01:28 GMT

Hello there, as an employee/ shareholder of my corporation which started conducting business in Sep. 2019. What if I did not run payroll to pay myself a salary and did not issue myself a distribution, can I exclude them on my return or how can I fix this? I have a first year operating loss.

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

Anonymous_ — Mon, 27 Jul 2020 14:03:56 GMT

Did you read through the following thread?

https://ttlc.intuit.com/community/business-taxes/discussion/filing-first-corporation-tax/01/1695794

Your return is late at this point and you really do need a tax professional.

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

mkzang — Thu, 19 Nov 2020 23:02:27 GMT

Are there any members of a c corp or s corp that are not considered employees that can be paid dividends??

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

Anonymous — Fri, 20 Nov 2020 00:02:10 GMT

any stockholder of an S-corp or C-corp can be paid dividends even if they are not employees. there is one caveat. the payments must be in portion to the stock holdings. so if shareholder A holds 100 shares and is paid a dividend of $50 every other shareholder must be paid the same 50 cents per share dividend. it is crucial on an S-corp. paying different amounts to different shareholders that are not in proportion to shareholdings would indicate there is a second class of stock which would result in termination of S-Corp status. An S-corp can have multiple classes of stock with strict limitations. every class must have the same rights to distributions and liquidation proceeds.

Treasury Regulations (“Regulation”) § 1.1361-1(l) provides rules interpreting the one class of stock requirement. In general, a corporation does not have an impermissible class of stock if all of its outstanding shares of stock confer identical rights to distribution and liquidation proceeds (“Proportionate Distributions”). However, as mentioned above, the foregoing does not preclude differences in voting and other rights between outstanding shares of stock. As long as the Proportionate Distributions standard is satisfied, a corporation may have voting and nonvoting shares of stock, a class of stock that may vote only on certain issues, irrevocable proxy agreements, or groups of shares that differ with respect to rights to elect members of the board of directors (or managers in the case of a limited liability company).

there are also state laws that may cause legal issues with nonproportional distributions. in one case a C-Corp wanted to liquidate. it was found that some shareholders were paid but others were not. it could not liquidate until it paid those unpaid dividends to the proper shareholders. to those, it could not find the amount unpaid had to be turned over to the state to hold (escheat) as unclaimed property. this was very expensive for the corp because the non-payments went back about 20 years. so the records for those years had to be obtained and then the numbers reconciled.

as to what the IRS could do with disproportionate distributions is take the position that the proportionate amounts were dividends but anything else was compensation and then it hits the corp for unpaid payroll taxes, penalties and interest. this could be done to either a C or S-corp. in addition the IRS would change the S to a C-corp and then all its income is subject to income taxes.

Does an officer of a corporation have to report all compensation for payroll tax purposes? it depends on how you define compensation. salary - yes, reimbursement under an accountable plan - no, pay officer's personal expenses that are expensed on corp books - yes. what if set up as a loan - well then the officer should pay back promptly. nonpayment, if caught by the IRS, could be deemed compensation. dividends - no but it could be compensation if disproportionate. on a S-corp any medical insurance paid by the Corp for a s/h or s/h family holding more than 2% of stock must be added to the W-2. if not it's a non-deductible expense.

if a shareholder performs no services for the Corp then they are not an employee.

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

mkzang — Sat, 21 Nov 2020 08:29:44 GMT

Thanks so much. You answered so many questions. I have just a few more. If there is a shareholder that isnt a employee, can they receive a loan if it is paid back before the end of year? Also how would this be declared on their personal taxes? and is there a limit to the loan amount

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

Anonymous_ — Sat, 21 Nov 2020 14:05:27 GMT

Yes, a loan can be made to a shareholder who is not an employee, but it must be a bona fide loan and not a disguised dividend (or distribution).

Actually, such loans from corporations to shareholders are considered assets and the size of the loan, and other details (such as charging interest at the market rate), can become complicated so professional guidance is recommended.

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

Anonymous — Sat, 21 Nov 2020 18:20:57 GMT

if below-market interest is charged then IRC Section 7872 comes into play. if the loan interest rate is above the applicable federal rate and the amount loaned does not exceed $10,000 this section does not apply. if $10K or more and interest below the AFR the IRS requires the imputation of interest as follows

(2)Applicable Federal rate
(A)Term loans
In the case of any term loan, the applicable Federal rate shall be the applicable Federal rate in effect under section 1274(d) (as of the day on which the loan was made), compounded semiannually.

(B)Demand loans
In the case of a demand loan, the applicable Federal rate shall be the Federal short-term rate in effect under section 1274(d) for the period for which the amount of forgone interest is being determined, compounded semiannually.

For purposes of this title, in the case of any below-market loan to which this section applies and which is a gift loan or a demand loan, the forgone interest shall be treated as—
(A)transferred from the lender to the borrower, and
(B)retransferred by the borrower to the lender as interest.

to avoid such issues the loan should be documented in writing and specify an interest rate not below the required rate. the shareholder should abide by the terms especially repayment of principal and interest.

Re: Yes, according to the IRS website (Paying Yourself), "An...

melissaplanu — Thu, 25 Mar 2021 00:38:55 GMT

How can the owner of a C Corp (no income during the business year) pay himself?

Re: Yes, according to the IRS website (Paying Yourself), "An...

WendyN2 — Sun, 28 Mar 2021 18:53:21 GMT

If the C Corp has retained earnings (which I would hope that they do - REs are moneys held in the Corp from prior year revenues that resulted in a net profit - it's a "roll over" into the following year of "cash on hand", basically) - then the C Corp can use these REs to pay an employee.

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

yihuih — Sat, 29 Jan 2022 19:37:17 GMT

Dear Professional:

I am c-corp. I pay myself w2. I paid total 15k. Within 15k, I put 10k into my 401k account. My question is that 1120 Line12 Compensation of officer should be 15k or 15k-10k=5k? w2 box 1 is 5k.

Re: Does a officer of a C Corporation have to report all compensation for payroll tax purposes? O...

Anonymous_ — Sat, 29 Jan 2022 19:43:53 GMT

Line 12 is the total amount of compensation.