S-corp Payroll: Steps & How Paychex Can Help You

At the end of the day, the ultimate goal is to meet your tax obligations while also being paid what you’re worth. If you’re not sure how to handle paying yourself when you start (or switch to) an S corp, you can end up with inaccuracies in your books that lead to larger tax problems later. Your Bench bookkeeping team will keep your financials up-to-date so you’re making informed decisions and complying with any new requirements. Claiming a home office deduction can provide significant tax savings for S Corp owners, but it’s essential to follow the rules. Your home office must be your primary place of business and used exclusively for work.

Calculate taxes and net payroll

• Ensuring that your salary aligns with market rates and cost of living is crucial for IRS compliance.
• Starting with essential information like your federal ID number and employee details, our team creates your account and transfers your historical payroll data directly from your previous system.
• Unlike regular income taxes, which are withheld based on your total earnings, payroll taxes are determined annually and calculated based on your taxable wage base.
• You just have to choose your salary and pay schedule and connect your bank accounts.
• You also need to check the right “Report For This Quarter” box in the upper right corner of page 1 (check January, February, March for the first quarter, for example).

Any discrepancies can lead to penalties or audits, making it imperative for S Corp owners to stay vigilant and adhere strictly to tax regulations. Properly reporting salary and taxes s corp payroll not only ensures compliance but also promotes financial stability and peace of mind. Seeking professional advice can provide clarity and ensure that you are meeting all regulatory requirements while optimizing your tax situation.

Key differences between Multi Member LLC vs Single Member LLC

Here’s how you can run payroll for an S Corp to automatically pay yourself for a job well done. We’ll walk you through what a change in structure means for your business, as well as keep your books up to IRS standards. Add in our tax filing solution, and you’ll gain year-round tax advisory support in addition to an all-star team to prep and file your tax return. Each month, you know exactly how much company money is paid to you versus taking it from the business account law firm chart of accounts every time you need money.

How To Choose the Best Payroll Service for S Corp Owners

This differs from traditional corporations, which get taxed twice—once at the business level and again when owners receive their share of the profits. A good payroll service provider can track and record wages, disburse payments, and file the required IRS forms for less than $50 per month. It’s not just about shifting the work burden; it’s about the peace of mind of having done it correctly, and the responsibility for ensuring it’s properly done rests with the employer. Because shareholders are employees if they perform work for the business, S Corps must prepare and file payroll taxes. Outsourcing payroll processing to specialized services can also be beneficial.

Filing Federal Quarterly Payroll Taxes

• From assisting with LLC formation to helping you navigate equity distribution and compliance, our experts are here to support your journey every step of the way.
• Your S corporation will pay 7.65% of your salary in taxes for Social Security and Medicare payroll taxes.
• Adhering to these standards not only prevents tax penalties but also aligns compensation with market rates.
• Although it’s much more straightforward when you are the sole employee, it can still be overwhelming when you consider all the IRS requirements and the penalties for messing it up.
• You can also quickly generate reports showing payroll history, tax withholdings, and distribution patterns to support compensation decisions during tax time or in case of an audit.

This unique business structure offers a tax advantage that allows you to keep more of what you earn by splitting your income between salary and distributions, reducing your self-employment taxes. The business pays owners and working shareholders through the S-corp payroll, and the owner can take the remaining profits as distributions. If you’re wondering why S corp owners don’t just take zero pay to avoid self-employment taxes altogether, there’s a catch.

Management Flexibility

• The IRS has a free Tax Withholding Estimator on their website that you can use to determine how much you will owe.
• He’s educated more than 100,000 financial professionals on the topic and has been published in numerous national and state journals.
• Review your state’s requirements to determine whether or not you need workers’ compensation insurance.
• Small side hustlers or newer self-employed people who use a sole proprietorship or a traditional LLC can withdraw money from their business bank account to pay themselves whenever they want.
• This is the amount that your S corporation will withhold from your employee paycheck and instead pay to the IRS in quarterly taxes on your behalf.
• Paychex helps you simplify the process with payroll solutions for shareholders and employees and services tailored to the unique needs of S-corps.

The retained earnings balance sheet IRS has a free Tax Withholding Estimator on their website that you can use to determine how much you will owe. This is the amount that your S corporation will withhold from your employee paycheck and instead pay to the IRS in quarterly taxes on your behalf. Let’s say a client comes in after year end and after the filing deadline to file payroll tax returns.

He’s educated more than 100,000 financial professionals on the topic and has been published in numerous national and state journals. Ensuring that your salary aligns with market rates and cost of living is crucial for IRS compliance. Failure to adhere to these standards can result in penalties, making it imperative to base your compensation on accurate and up-to-date salary data. Moreover, consider the size and financial health of your S Corp business when determining your salary. The salary should be reasonable in the context of your company’s revenue and profitability. Reasonable compensation is not a set standard, but rather based on facts and circumstances.