S-Corp FICA and payroll tax breakdown for owners

Summary

Sources: IRS Employment Taxes for Small Businesses, Form 941 instructions, Social Security wage base notices.

Educational only — not tax, legal, or investment advice. Confirm rates, thresholds, and forms with IRS.gov and a licensed CPA or enrolled agent for your facts.

S corporation owners who work in the business receive W-2 wages subject to FICA (Social Security and Medicare). Profit distributed beyond wages avoids FICA on the distribution itself but remains taxable income. This breakdown clarifies payroll components for planning—not to justify unreasonably low wages.

1. FICA components on wages

Tax	Employee rate	Employer rate	Wage base
Social Security	6.2%	6.2%	Annual IRS cap
Medicare	1.45%	1.45%	No cap on wages
Additional Medicare	0.9% employee only	N/A	Over threshold

2. Combined cost illustration

Reasonable W-2 salary $90,000 (no other wages, wage base above $90k):

• Employee FICA: 7.65% × $90,000 = $6,885 withheld
• Employer FICA: 7.65% × $90,000 = $6,885 corp expense
• Total FICA cost on wages ≈ $13,770

3. Compare $50,000 distribution only scenario

If same $50,000 were sole prop profit instead of S-Corp distribution, SE tax applies on 92.35% base. S-Corp saves FICA on distribution slice but adds payroll admin and reasonable compensation requirement on the wage slice.

4. Form 941 rhythm

Deposit schedule (monthly or semi-weekly) depends on lookback liability. Late deposits trigger penalties even for owner-only payroll.

5. State payroll taxes

Unemployment insurance, disability (CA, NY, etc.), and local payroll taxes stack on FICA. Register in each work state.

6. Spouse on payroll

Paying a spouse W-2 wages can fund Social Security credits and retirement plan deferrals—must be for real services at market rate.

7. Year-end true-up

Bonus wage in December increases FICA but may help QBI wage limits for some entities—coordinate with CPA before accelerating wages.

8. Documentation

1. Payroll provider reports.
2. Board approval of compensation.
3. Time records for services performed.

Official sources

• IRS — Small Business & Self-Employed
• IRS — Forms & Publications

FICA planning is one slice of entity choice. Model income tax, state tax, and QBI together.