Payroll for S-Corp / C-Corp

Payroll is required if you are: 1. An S-Corporation owner — the IRS requires a reasonable salary paid through W-2 before you can take distributions. Without payroll, your S-Corp election can be revoked. 2. A C-Corporation owner who takes a salary — Form 1120 assumes payroll if there is officer compensation. 3. Any business with employees — federal law requires a payroll system for withholding. Payroll involves several responsibilities: • Withholding federal income tax (based on W-4 forms) • Withholding FICA (Social Security 6.2% + Medicare 1.45%) from the employee's paycheck • Employer FICA match (6.2% + 1.45%) — the company adds this • Federal unemployment tax (FUTA) 6% on the first $7,000 of wages • State income tax withholding (where applicable) • State unemployment insurance (SUI/SUTA) varies by state • Workers' compensation insurance — required in most states with employees • Pay schedule — bi-weekly (every 2 weeks) or semi-monthly (the 1st and 15th) are popular • Quarterly Form 941 — a report of withheld taxes to the IRS • Annual W-2 for each employee by January 31 • Annual W-3 — a summary of all W-2s to the SSA DIY payroll is possible but risky — mistakes mean huge penalties (the federal trust fund recovery penalty can be the owner's personal liability). It's better to use a payroll service.