Lesson 7 of 11
Payroll and running the election properly
Electing S status commits you to running payroll properly from the effective date.
What has to be in place
- Federal payroll registration and state withholding and unemployment accounts
- Regular payroll runs with income tax and FICA withholding
- Federal employment tax returns and deposits on schedule
- State payroll returns
- A W-2 issued to each owner-employee after year end
Salary versus distributions
Keep the two clearly separate in your books. Salary runs through payroll. Distributions are recorded against the owner's equity and are generally made in proportion to ownership.
Health insurance and benefits
Benefits for shareholders owning more than 2 percent have specific treatment, including how health insurance premiums are reported on the W-2. Ask your accountant to set this up correctly at the start of the year.
Not sure whether the election fits?
The numbers depend on your profit, your role in the business and your state. Gullia Filing's tax team reviews your position, prepares Form 2553 where it makes sense, and sets up payroll so the election holds up.