Payroll requirements for S-Corporations and Reasonable Compensation

Payroll refers to the process of paying employees for the work they have done. This includes calculating and distributing employee wages, salaries, bonuses, and deductions. A reasonable compensation is the amount that an employee should be paid for the work they are performing, taking into account factors such as the employee's qualifications, experience, and the going rate for similar positions in the market.

For owners, there are specific rules that apply to payroll. For example, owners who are also employees may be subject to the same payroll taxes as other employees. Additionally, there may be rules regarding how much owners can pay themselves, known as "reasonable compensation", which is the amount that an owner should be paid for their work taking into account the company's financial condition and the going rate for similar positions in the market. Employers are required to pay payroll taxes which include Social Security and Medicare taxes, Federal and State unemployment taxes and any other taxes required by the state laws on payroll.

We use Quickbooks, Paychex, Gusto, ADP, and Square for payroll processing. If you have an S-Corporation or an LLC taxed as an S-Corporation and you’re not processing payroll you need to contact us to discuss.