i formed a s corp and learned that “shareholder-employee” must pay employment taxes on their share of income. if the only income was bank interest, am i required to pay employment taxes? are there any more taxes other than the passive income tax?
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Comment by
Kristine M
3 Dec 2009
Interest income is subject to income taxes, but not self employment or payroll taxes. It will be coded as interest income on your K-1, and will thus be reported as interest income on your personal tax return.
Shareholders of an S Corp can have dividend distributions or salary income. You pay payroll taxes on your salary income in addition to ordinary income taxes (the payroll taxes will be withheld from your paycheck just like if you were working for someone else).
Distributions are subject to ordinary income taxes, but not payroll taxes. However, you have to be careful to take a reasonable salary, or the IRS could reclassify your distribution as payroll.
This is a complicated subject, so I recommend that you speak to your CPA or tax professional about this. Good luck!