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mzenah
Level 2

Payroll Tax applied on foreign C corporate owner

I'm Canadian C Corporate owner , if i want to pay payroll for myself do i need to withhold tax & file periodic payroll tax form?i live & work from Canada

 

Solved
Best answer October 11, 2018

Best Answers
Peter_G_Stone
Level 3

Payroll Tax applied on foreign C corporate owner

@mzenah, as a corporate officer, you are obligated to pay yourself a salary. This is not optional under US federal tax law. Although you live in Canada, the business is based in FL and this is where payroll taxes will be paid. I understand FL has no income tax, so most likely you will have no payroll tax other than SUTA for the state. However, I am unfamiliar with FL tax law, and I suggest you consult a knowledgeable FL CPA, EA, or other tax/accounting professional. 

Normally, on the federal side, you have 15.3% total FICA withholdings that will need to be paid. The company pays half for you, and is half deducted from your gross pay. There is also FIT that will vary depending on your gross salary amount. This amount must be paid with your other employees (if any) withholdings with the company's 941 payroll taxes. Frequency of payments (bi-weekly, monthly, yearly) depend on different factors.

Seeing as how you live and work in Canada, I'm sure there are more  complexities for you personally with the salary (i.e currency exchange). I advise you to consult a professional with multi-national business experience. Thanks, hope that helped some.

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15 Comments 15
EmilyCowan
Level 7

Payroll Tax applied on foreign C corporate owner

Hey @mzenah - welcome to QB Community. Would love to hear more about your business. You live and work in Canada but your C Corp is located in the U.S.?

mzenah
Level 2

Payroll Tax applied on foreign C corporate owner

Hi Emily, 

Yes that's right , i live & work in Canada & own drop-shipping C corporate in Florida USA 

hope you can help me with issue 

 

Maha

EmilyCowan
Level 7

Payroll Tax applied on foreign C corporate owner

Got it - thanks for clarifying! For some basic information on paying yourself from your C Corp, check out this article from the U.S. Internal Revenue Service. I also like this article for considering whether to pay yourself a salary or take an owner's draw.

 

@Peter_G_Stone, @Rustler@lynda, any thoughts on Maha's situation?

Rustler
Level 15

Payroll Tax applied on foreign C corporate owner

@EmilyCowan

 

Your linked article
https://quickbooks.intuit.com/r/payroll/salary-or-draw-how-to-pay-yourself-as-business-owner/


is wrong in the paragraph titled ?The Right Method for You: salary or Draw"
"Most businesses are set up as a sole proprietor, LLC, or a partnership, which means that you may have the opportunity to take a draw or a salary (or both) ...... Your decision about a salary or owner’s draw should be based on the capital your business needs, and your ability to perform accurate tax planning."


sole proprietors and partners are not allowed to be on salary, so there is no decision to make
c- and s-corporations require working shareholders to be on salary - again no decision to make

 

LLC has nothing to do with anything and is not recognized by the IRS as a business type.

EmilyCowan
Level 7

Payroll Tax applied on foreign C corporate owner

Hey @Rustler. Thanks for your feedback on that article - I'll be sure to pass it on!

 

Any thoughts on @mzenah's situation as the Canadian owner of a U.S.-based C Corporation?

Rustler
Level 15

Payroll Tax applied on foreign C corporate owner

@mzenah

 

You pay yourself a salary based upon where you work, Canada from what you say.

 

Whoever is running your other operation would be on salary and US taxes would apply to him.

lynda
Community Champion

Payroll Tax applied on foreign C corporate owner

@EmilyCowan and @mzenah:   I would always defer a question like this to the CPA that does your tax filing for the business.  He/she would know the complexities of the business and the tax laws/rules around being a Canadian owning a business in the US.

 

Lynda

Peter_G_Stone
Level 3

Payroll Tax applied on foreign C corporate owner

@mzenah, as a corporate officer, you are obligated to pay yourself a salary. This is not optional under US federal tax law. Although you live in Canada, the business is based in FL and this is where payroll taxes will be paid. I understand FL has no income tax, so most likely you will have no payroll tax other than SUTA for the state. However, I am unfamiliar with FL tax law, and I suggest you consult a knowledgeable FL CPA, EA, or other tax/accounting professional. 

Normally, on the federal side, you have 15.3% total FICA withholdings that will need to be paid. The company pays half for you, and is half deducted from your gross pay. There is also FIT that will vary depending on your gross salary amount. This amount must be paid with your other employees (if any) withholdings with the company's 941 payroll taxes. Frequency of payments (bi-weekly, monthly, yearly) depend on different factors.

Seeing as how you live and work in Canada, I'm sure there are more  complexities for you personally with the salary (i.e currency exchange). I advise you to consult a professional with multi-national business experience. Thanks, hope that helped some.

Rustler
Level 15

Payroll Tax applied on foreign C corporate owner


@Peter_G_Stone wrote:

@mzenah, as a corporate officer, you are obligated to pay yourself a salary. This is not optional under US federal tax law. 

 

I read this differently, I do not see a definite requirement for an officer who does not work in that location.

https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-employees-shareholders-a...

 

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 include corporate officers. When corporate officers perform a service for the corporation and receive or are entitled to payments, those payments are considered wages.

 

If an officer does not perform any services or only performs minor services and is not entitled to compensation, the officer would not be considered an employee.

Peter_G_Stone
Level 3

Payroll Tax applied on foreign C corporate owner

@Rustler, good points, but whether @mzenah is working at the location is not the main issue. The services provided are. I based my answer off the assumption that there are significant services provided from the OP. Perhaps there are not. Maha, should see a professional where these topics can be discussed in depth. 

mzenah
Level 2

Payroll Tax applied on foreign C corporate owner

So If i do a main role into my company i need to be paid & withhold tax even if i work outside USA right?

mzenah
Level 2

Payroll Tax applied on foreign C corporate owner

Thanks , i actually asked Several CPA's but i get conflicting , one told that i may apply  for tax withhold exemption & filling form w-8ben , another told me i need to withhold tax for my payroll , another one told me that my payroll is not taxable due i don't have physical presence into USA so i'm not considered engaged in trade in USA so i don't to pay tax .

i'm really confused 

cedrick1
Level 1

Payroll Tax applied on foreign C corporate owner

I have the exact same situation and also got conflicting answers from different CPAs. Please let me know if you find the correct answer and I will do the same.

JB82
Level 1

Payroll Tax applied on foreign C corporate owner

Hi Peter,

 

Followup question, I see that this is all based on "source income"

 

Does the source here refer to the business' location or the employee's location? It sounds like you're saying it's the business (and that makes common sense) but I can't seem to find any IRS pubs specifically defining it.

 

Thanks for any help!

jemyjanie
Level 1

Payroll Tax applied on foreign C corporate owner

When a foreign owner holds shares in a U.S. C-Corporation, payroll taxes typically don't directly apply to the foreign owner unless they are actively working for the corporation within the United States.

However, if the foreign owner is employed by the C Corporation  and performs services within the U.S., they might be subject to U.S. payroll taxes such as Social Security, Medicare, and federal income tax withholding on their compensation, similar to any other employee.

Foreign owners who are not actively engaged in providing services within the United States might not be subject to U.S. payroll taxes, but they might have other tax obligations related to their ownership interest or income generated from the C-Corporation. Taxation for foreign owners of U.S. entities can be complex and may vary based on treaties, local laws, and individual circumstances. Seeking advice from a tax professional or international tax expert is highly recommended to ensure compliance with relevant tax laws and regulations.

 
 
 

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