topic S Corp filing for Div/employee payments in Business & farm

S Corp filing for Div/employee payments

vivithemage — Sat, 01 Feb 2020 15:11:50 GMT

This is my first year doing our taxes for the S Corp, which has existed for 10+ years now. I was hoping to save the $600 of paying my tax guy and just use TurboTax Business.

I was wondering how the payments to ourselves (2 owners @ 50%) should get recorded? The reading I did was we should have been doing W-2 type stuff quarterly? My tax accountant never did that, we only ever got a schedule K-1 and used that on our personal returns.

We usually only pay ourselves a few grand, company is a side business that only grossed 46k last year. So I wasn't sure what I should put.

thanks for any insight!

Re: S Corp filing for Div/employee payments

DavidS127 — Sat, 01 Feb 2020 19:03:15 GMT

For an S-Corp, payments to shareholders fall into two categories: reasonable compensation (wages) and non-wage distributions.

IRS rules require that S-Corp shareholders pay themselves wages based on the fair value of the services provided to the business. For an S-Corp this is the "vehicle" for you to pay the social security and Medicare taxes on the value of your compensation. So yes, if you work in the business you should be getting a W-2 every year. If you haven't been getting a payroll check regularly throughout the year, you can record the wages in December and file the necessary payroll tax returns for the quarter ending December 31.

Note also that certain payments to a "more than 2% shareholder" are treated as wages by the IRS on the tax return and should be on the W-2 you "send yourself". These include your health insurance premiums paid by the S-Corp on behalf of that "more than 2% owner".

The net income of the S-Corp, after deducting your wages, becomes a distribution to you on the K-1 you receive each year.

This IRS web page on S Corporation Compensation and Medical Insurance Issues is a good starting point to understand these issues.

Re: S Corp filing for Div/employee payments

vivithemage — Sat, 01 Feb 2020 22:50:40 GMT

Yeah, that is what I read, but it seems silly for only a few grand a year to need to do all of that. I am guessing we missed the 12/31 deadline, ha ha. Is that something I can file with TT Business?

Re: S Corp filing for Div/employee payments

DavidS127 — Mon, 03 Feb 2020 15:36:02 GMT

Yes, you can create W-2 forms in TurboTax Business. Refer to the TurboTax Help article at this link for more information.