S-corp owner-employees must receive a reasonable W-2 salary before taking shareholder distributions. Failing to run payroll is the most audited issue the IRS targets in S-corporation returns.
Why S-Corporation Payroll matters for employers
S-corporation owner-employees who perform more than minor services for the company must receive a W-2 salary that reflects reasonable compensation for their role. The IRS compares shareholder W-2 wages to distributions and looks for situations where compensation is suppressed to avoid FICA taxes on what would otherwise be payroll income. Reasonable compensation is based on what a similar business would pay an arm's-length employee for the same services.
Failing to run payroll, paying a token salary, or paying compensation entirely as distributions are the top S-corp audit triggers. BEG manages S-corp owner payroll as part of its fully managed service, ensuring proper W-2 wages are established, FICA is paid correctly, and year-end reporting is accurate.
How BEG handles S-Corporation Payroll for clients
BEG Managed Payroll handles S-Corporation Payroll as part of a fully managed payroll service at $25-$45 per employee per month. Clients do not need to track compliance rules, filing deadlines, or calculation methods related to S-Corporation Payroll on their own. Everything is included. Learn about BEG Managed Payroll.
Frequently asked questions
Do employers have to manage S-Corporation Payroll themselves?
No. A managed payroll provider handles S-Corporation Payroll as part of full-service payroll. BEG manages this for clients at $25-$45 PEPM with no system migration required.
What happens if S-Corporation Payroll is handled incorrectly?
Errors related to S-Corporation Payroll can trigger IRS penalties, state agency assessments, or employee disputes. Catching and correcting errors before filing is far less costly than after-the-fact corrections.
How does BEG handle S-Corporation Payroll for managed payroll clients?
BEG tracks, calculates, and remits everything related to S-Corporation Payroll as part of fully managed payroll. Clients do not need to monitor compliance -- that is included in the service at $25-$45 PEPM.
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About the author
Anthony Moretti is VP of Sales at Business Executive Group, where he builds BEG's managed payroll and HR service verticals for employers across Dallas-Fort Worth and nationwide. He writes the BEG Payroll Glossary to give employers plain-English answers on payroll and compliance.
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