What is an S-Corporation Owner's Distribution?

An owner of an S-Corporation has the ability to reduce the Social Security and Medicare taxes that they pay on profits from the business. The owner can use the 60/40 rule often used by CPAs when paying themselves, which classifies 60% of the net profits of the business as a salary and 40% of the net profits as a distribution to the owner.  The salary amount will be taxed all Federal and State taxes, under typical payroll practices. The distribution will be taxed on Federal and State Income taxes only. This allows an S-Corp owner to save money by not paying Medicare and Social Security taxes on the 40% distribution portion.

CertiPay Online offers a special S-Corporation Distribution feature that allows a user to select an Unearned Income earning type and enter a flat amount for that payroll. The user will be responsible for calculating the 60/40 amounts, 60% for salary and 40% for distribution. The system will calculate Federal and State Income taxes on that flat amount entered to be deposited to the proper agencies. However, the YTD total for that S-Corp earning will not be reported on the employee’s W2 at the end of the year. The owner will be responsible for reporting that amount on a Schedule K-1 for 1040. 

How do I use this feature?

In order to use this feature please contact Support and request to have this feature enabled.

Once enabled you will select earning type "SCorp Health Expense" when adding a One Time earning to the grid during payroll and enter the flat amount desired. The system will automatically calculate and withhold only Federal and State Income taxes on the flat amount entered.

 

Resources: 

https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations 

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