topic Husband and wife owned LLC that files as S Corp in Business & farm

Husband and wife owned LLC that files as S Corp

Ggoodwin01 — Wed, 03 Mar 2021 18:52:11 GMT

MY husband and I are the only members of an LLC that files as an S Corp. Since we are the only members, do we have to pay ourselves a salary?

Re: Husband and wife owned LLC that files as S Corp

MinhT1 — Wed, 03 Mar 2021 19:10:14 GMT

If your LLC is taxed as a S-Corp, the S-Corp has to pay owners who work for the S-Corp reasonable salaries.

Please read this IRS document for more information.

Re: Husband and wife owned LLC that files as S Corp

Ggoodwin01 — Wed, 03 Mar 2021 20:08:25 GMT

Can we issue a 1099 for these wages? Or W-2?

Re: Husband and wife owned LLC that files as S Corp

ToddL99 — Wed, 03 Mar 2021 20:27:31 GMT

W-2.

Form 1099-NEC is specifically intended for "non-employees". Corporate officers are specifically included within the definition of employee for FICA (Federal Insurance Contributions Act), FUTA (Federal Unemployment Tax Act) and federal income tax withholding

FS-2008-25 states: Corporate officers are specifically included within the definition of employee for FICA (Federal Insurance Contributions Act), FUTA (Federal Unemployment Tax Act) and federal income tax withholding under the Internal Revenue Code.

Generally, an officer of a corporation is an employee of the corporation. The fact that an officer is also a shareholder does not change the requirement that payments to the corporate officer be treated as wages.

For a detailed discussion of this subject by the folks at "Reasonable Compensation Simplified", see

1099 OR W-2 FOR SHAREHOLDER-EMPLOYEES OF S CORPS? UPDATED FOR 199A

Re: Husband and wife owned LLC that files as S Corp

Opus 17 — Wed, 03 Mar 2021 20:26:48 GMT

The S-corp must pay a salary, withhold taxes and issue a W-2 just as if you were an employee for any other business. It's ok to pay the salary as a single payment at the end of the year, if you want, but it is subject to withholding of federal, state income tax and social security and medicare tax. There may be state requirements like unemployment compensation or worker's comp. You must pay a reasonable salary for the work performed. (The point is, you can't pay a token salary and then take the profits as capital gains which are taxed at a lower rate and aren't subject to social security or self-employment tax. You start by paying a reasonable salary for the work being done, then you can take out any additional profits.)