Though there was no dispute that the shareholder was an employee, the issue dealt with the reasonableness of the wage amount. In a 2012 case the shareholder received wages of $24,000 per year and large distributions. In the above listed cases the shareholders failed to report any wages from their S corporations. The Tax Court ruled the dividends were actually wages, subject to employment taxes. In yet another similar case, the Tax Court held that an accountant was taking dividends and performing duties for the company. As such, the Court ruled the shareholder was an employee and owed employment tax. The Sixth Circuit held that a shareholder-employee of a company used the company bank account for personal use. In 2001, in a Tax Court case against a Veterinary Clinic, the Tax Court ruled that an employer cannot avoid federal taxes by characterizing compensation paid to its sole director and shareholder as distributions of the corporation’s net income rather than wages.
Distributions, Dividends and Other Compensation as WagesĬourts have found shareholder-employees are subject to employment taxes even when shareholders take distributions, dividends or other forms of compensation instead of wages. If an officer does not perform any services or only performs minor services and is not entitled to compensation, the officer would not be considered an employee. Courts have consistently held S corporation officers/shareholders who provide more than minor services to their corporation and receive, or are entitled to receive, compensation are subject to federal employment taxes. Such payments to the corporate officer are treated as wages. The fact that an officer is also a shareholder does not change this requirement. When corporate officers perform a service for the corporation and receive or are entitled to payments, those payments are considered wages.
#Turbotax for s corp home and business code#
The definition of an employee for FICA (Federal Insurance Contributions Act), FUTA (Federal Unemployment Tax Act) and federal income tax withholding under the Internal Revenue Code include corporate officers.
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