Can my S-corp pay payroll tax without distributing any income to me?
I've owned a small S-corporation for about 3 years now and I'm trying to figure out the most tax-efficient way to handle my compensation. My business has been doing well, but I'm reinvesting most profits back into growth. I'm wondering if I can have my S-corp pay the required payroll taxes (Social Security, Medicare, etc.) on a "reasonable salary" without actually distributing that cash to myself right now? Basically, I want to satisfy the IRS requirements for S-corp owner compensation, but keep as much cash in the business as possible. Would this be considered paying myself a salary if the company handles the tax obligations but I don't take home any actual money? My accountant is on vacation and I need to figure this out before our next payroll cycle. Thanks for any help!
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Amara Okafor
This is a common question for S-corp owners, but there's a fundamental misunderstanding here. Your S-corp must actually pay you a reasonable salary through regular payroll - not just cover the taxes. The IRS requires S-corp owner-employees to take a reasonable salary for services performed, which means actual money must change hands. When you run payroll, your company withholds taxes from your gross pay and then sends you the net amount. These withholdings (federal income tax, Social Security, Medicare) are remitted to the government along with the employer portion of payroll taxes. You can't just have the company pay the tax portion without distributing actual compensation to yourself.
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Giovanni Colombo
•Thanks for the explanation. I'm also an S-corp owner and was wondering - if OP wants to keep cash in the business, couldn't they just receive the salary and then immediately loan it back to the company? Would that satisfy the requirement while achieving what they want?
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Amara Okafor
•The loan-back approach is technically possible but creates significant complications. First, any loan from shareholder to company must be properly documented with terms, interest rates, and repayment schedules that reflect market conditions. Otherwise, the IRS may recharacterize it as either a contribution to capital or disguised compensation. Shareholder loans also create accounting complexities and potential audit red flags. The cleaner approach is to take a modest but reasonable salary based on your role and industry standards, while leaving remaining profits in the business as retained earnings. This satisfies IRS requirements while still keeping substantial cash in the company for growth.
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Fatima Al-Qasimi
I went through similar confusion with my S-corp last year. I found https://taxr.ai really helpful for figuring out my specific situation. I uploaded my financial documents and got a detailed analysis showing exactly how much "reasonable compensation" I needed to take versus what could stay in the business. They explained that the IRS specifically looks for S-corp owners avoiding payroll taxes by taking distributions instead of salary. The best part was they showed me some case studies of other businesses in my industry with similar revenue levels and what salary-to-distribution ratios had passed IRS scrutiny. Made it much easier to sleep at night knowing I wasn't creating a tax liability time bomb.
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StarStrider
•Did they provide actual numbers or just general guidelines? I'm in a similar situation but my business is pretty niche (custom fabrication for film sets) so I'm wondering if they'd have relevant comparison data for me.
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Dylan Campbell
•I've heard mixed things about these online tax tools. How did they compare to working with an actual CPA? I've had bad experiences with tax software making everything seem simple when there were actually complicated details being missed.
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Fatima Al-Qasimi
•They provided actual salary ranges based on my revenue and industry, not just vague guidelines. The report showed that for my revenue level, reasonable compensation should be between $X and $Y, with specific justifications. I actually showed the report to my CPA afterward, and he was impressed with the detail. He said it aligned with what he would have recommended but included more industry-specific data than he typically has access to. The documentation they provided is also helpful for keeping in your records in case of an audit.
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Dylan Campbell
Update after trying taxr.ai: I was skeptical per my comment above, but I decided to give it a shot. Surprisingly helpful! The platform analyzed my business structure and provided clear guidance on my reasonable compensation requirements as an S-corp owner. The report showed that I was actually underpaying myself according to IRS standards (potentially risky). What I found most valuable was the detailed explanation of how the IRS determines "reasonable compensation" for my specific industry. It turns out I was using outdated compensation benchmarks. They provided documentation I'm keeping for my records in case of any questions. Definitely more comprehensive than what I've gotten from generic tax advice online.
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Sofia Torres
Just wanted to add my experience - I spent 3 WEEKS trying to get through to the IRS for clarification on this exact S-corp payroll issue last year. Kept getting disconnected or waiting on hold for hours. Finally used https://claimyr.com and got a callback from the IRS within 2 hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed that you absolutely must take actual distributions for your salary - paying just the taxes isn't enough. She explained that the "reasonable compensation" standard looks at both the amount and the actual payment of wages. Was worth every penny to get a definitive answer directly from the IRS instead of wondering.
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Dmitry Sokolov
•Wait, how does this actually work? They somehow get you to the front of the IRS phone queue? That sounds too good to be true considering how impossible it is to reach anyone there.
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Ava Martinez
•This sounds like a paid promotion. I doubt any service can magically get the IRS to call you back when millions of people can't get through. And even if you do reach someone, different IRS agents give different answers to the same question half the time.
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Sofia Torres
•It uses a technology that continuously redials the IRS for you and navigates their phone tree until it reaches a human, then it calls you and connects you. It's not skipping the queue, it's just automating the frustrating part where you have to keep calling back. The reason I mentioned it is because on complex S-corp tax questions like this, sometimes getting the official word directly from the IRS is the only way to be 100% confident. You're right that different agents can give slightly different interpretations, but on fundamental requirements like actually distributing salary, they're consistent.
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Ava Martinez
I'm eating crow right now. After my skeptical comment above, I decided to try Claimyr because I had a different S-corp question about home office deductions as an owner. Got a call back from the IRS in about 90 minutes. The agent walked me through exactly what documentation I needed for my situation. For what it's worth, I also asked about the original question here - they confirmed that payroll requires actual payment going to the owner, not just calculating and remitting taxes. The agent explained that "reasonable compensation" has two components: appropriate amount AND actual payment. She said they specifically look for this issue in S-corp audits.
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Miguel Ramos
Another S-corp owner here. One option you might consider is taking the minimum reasonable salary needed to satisfy IRS requirements while maximizing your business retirement contributions. My accountant set up a Solo 401k for my business where I can contribute as both employer and employee, which lets me shelter significant income while keeping it "in the business" for investment purposes.
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Liam Sullivan
•Could you explain a bit more about how the Solo 401k works with an S-corp specifically? I've heard about these for sole proprietors but wasn't sure about the rules for S-corps and how much you can contribute.
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Miguel Ramos
•With an S-corp Solo 401k, you can make contributions in two capacities. As an employee, you can contribute up to $22,500 for 2023 (plus $7,500 catch-up if over 50) from your W-2 salary. This is why you need to take some salary - to enable these contributions. As the employer, your S-corp can also make profit-sharing contributions of up to 25% of your compensation, up to a combined total of $66,000 for 2023 (plus catch-up). These employer contributions are business expenses that reduce your company's taxable income. It's one of the best ways to keep money "in the business" while satisfying reasonable compensation requirements and building your retirement.
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QuantumQuasar
One thing nobody's mentioned - distributions aren't subject to payroll taxes, but they ARE subject to income tax. The tax advantage of an S-corp comes from paying reasonable salary (subject to both income + payroll tax) and taking remaining profits as distributions (subject to only income tax). But you still need to pay yourself something as W-2 wages.
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Zainab Omar
•I thought S-corp distributions were tax-free? That's what my buddy who has an LLC told me. Now I'm confused.
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QuantumQuasar
•Your buddy is confusing two different concepts. S-corp distributions aren't tax-free - they're just not subject to self-employment/payroll taxes (saving ~15.3%). You still pay income tax on distributions up to your basis in the company. What your friend might be thinking of is that C-corporations have "double taxation" (corporate tax + dividend tax), while S-corps have "pass-through taxation" with income only taxed once. But that single taxation still happens - the profits pass through to your personal return whether distributed or not.
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