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rMooch
Level 1

How can an S Corp owner, beyond salary, Pay a distributions that deducts/pays only federal / state income (ordinary) tax but not the self employment / medicare tax?

Quickbooks Payroll does not give me an option under Distributions (or any other options I see) to pay just the federal /state ordinary income tax. But, I have the option to take Distributions/Profit and only pay those instead of the self-employment taxes. Any answers?
6 Comments
Rustler
Level 15

How can an S Corp owner, beyond salary, Pay a distributions that deducts/pays only federal / state income (ordinary) tax but not the self employment / medicare tax?

An s-corp issues distributions tax free, for the most part, as a result they do not qualify for tax withholding. I say most part because it depends on your equity both before and after the distribution. IF, if the distribution does NOT drive your total equity negative (total of shareholder value and additional paid in capital) then the distribution is income tax free.

 

All that said, list yourself as a vendor, then pay the vendor the distribution amount, no 1099 mapping is required and the account listed should be retained earnings

rMooch
Level 1

How can an S Corp owner, beyond salary, Pay a distributions that deducts/pays only federal / state income (ordinary) tax but not the self employment / medicare tax?

Thanks, Rustler! The problem I am having is I am getting a huge tax bill (on my personal taxes). While I take a salary, distributions are not taxed when sent to my personal account but I get a tax bill later on when filing taxes - this issue is federal ordinary income taxes. So, I thought if I could pay myself a taxable distribution (not subject to self-employment taxes), I would be paying the taxes and get a deduction? 

 

But, your indication is to do a 1099. Can I pay taxes doing a 1099 to myself? 

Candice C
QuickBooks Team

How can an S Corp owner, beyond salary, Pay a distributions that deducts/pays only federal / state income (ordinary) tax but not the self employment / medicare tax?

Good Morning, @rMooch

 

I see how this can be time-consuming, trying to figure out the best way to resolve this issue. However, consulting with your accountant on this matter would be the greatest option. They'll be able to explain and give you the best accounting advice for this particular problem. If you don't have an accountant, you can check out this link to find one near you. 

 

Should you need any further assistance, don't hesitate to ask. I want to make sure that you're able to get this fixed as soon as possible. Bye for now!

rMooch
Level 1

How can an S Corp owner, beyond salary, Pay a distributions that deducts/pays only federal / state income (ordinary) tax but not the self employment / medicare tax?

I have spoken with my accountant. But, the accountant does not do my payroll. Anyway, a suggestion of a taxable distribution is what I have heard is an option - but Quickbooks Payroll does not have an option to pay a Distribution with only federal / state ordinary income taxes (no self-employment taxes). So, does Quickbooks Payroll offer this option? 

Kendra H
QuickBooks Team

How can an S Corp owner, beyond salary, Pay a distributions that deducts/pays only federal / state income (ordinary) tax but not the self employment / medicare tax?

Good morning, @rMooch

 

Thanks for following up on this thread. 

 

In Online Payroll, you can set up each employee as exempt from Social Security and Medicare and other supplemental state taxes. The Self-employment tax rate is 15.3% and consists of two parts: 12.4% for social security and 2.9% for Medicare. 

 

You can view or change the employee tax exemptions and here's how: 

  1. Click on Workers on the left menu, then select Employee
  2. Choose the employee's name. 
  3. Under the Employee Details, go to the pencil icon beside Pay
  4. Pick the pencil icon under the question What are (employee's name) withholding's?
  5. Scroll down until you reach the Tax Exemptions section and click on the drop-down arrow. 
  6. Go to the taxes the employees are exempt from, then select Done

 

For more detailed instructions with employee tax exemptions, you can refer to this article: Employee payroll tax exemptions

 

Feel free to comment below if you have any more questions. Have a safe and productive rest of your day!

rMooch
Level 1

How can an S Corp owner, beyond salary, Pay a distributions that deducts/pays only federal / state income (ordinary) tax but not the self employment / medicare tax?

Kendra, this seems like a good idea - except that I do want to have most of my distributions/profit to be salary and pay the self-employment taxes. This is for the portion above salary that I (as the owner of the S Corp will owe federal (and possibly state) tax. So, I cannot change that fact that I owe the self-employment tax for my salary part - just for the distribution. I want to pay the federal tax with each distribution I owe throughout the year (instead of at tax time - the bill is too high - yes, I know I can save the money). Therefore, should I create a second employee (who is me) with all the same information except that I am exempt from SS/Medicare? Is that both legal and OK? 

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