Payroll Taxes for Corporate Shareholder Wages
Explains payroll tax obligations for S-corporation shareholder-employees, including the requirement to pay reasonable wages rather than draw compensation as distributions.
Seattle Corporate Shareholder Wages Lawyer
Shareholders at S-corps and similar business entities who are involved in the management of the business are required to be paid reasonable wages, and payroll taxes must be withheld from those wages. W-2 forms must be completed for these corporate officers. They cannot simply draw money from the company as payment. Doing so will lead to issues with the IRS.
The Bellevue, Washington, law firm of Lana Kurilova Rich PLLC provides representation to employers in the Greater Seattle area, statewide and nationwide. If you have been contacted by the IRS about payroll taxes for corporate shareholder wages, or you suspect you will be, call our Seattle attorney at (425) 289-0629 for an initial phone consultation.
Washington Attorney, Helping to Avoid a Common Payroll Tax Error for S-Corps
Certified public accountants (CPA) who are not always well-versed in the differences between different business entities frequently fail to advise business owners about the requirement to pay shareholders (who are often also the business owners themselves) reasonable wages. This is because this is not a requirement of other business entities, such as LLCs and sole proprietorships. In some cases, business owners may pay shareholders a very small amount. The payment must actually be aligned with the wages paid to other workers in the industry, or the IRS may interpret a low wage as an intentional attempt to avoid payroll taxes. The IRS then has the power to reclassify all draws into wages, with the resulting additional tax, interest, and penalties.
This is not an ordinary IRS tax problem. When the IRS discovers this error, they may view all funds drawn from the business by the shareholders and use that as the basis of calculating payroll taxes. They will then add interest and penalties. If we can demonstrate that this was an error, that the taxpayer received a wrong advice (or no advice) from his CPA, or the wages paid were in fact reasonable, we may be able to work with the IRS to achieve a reasonable settlement or avoid this extra tax liability altogether. That is our goal.
For Tax Problem Resolution, Call (425) 289-0629 for an Initial Phone Consultation at Our Bellevue, Washington, Law Firm
We invite you to contact us today by phone or by e-mail to discuss your case with our experienced Washington payroll tax lawyer. Find out how we can help. We serve clients nationwide.
About Attorney Lana Kurilova Rich
- Washington tax attorney since 2003: Lana Kurilova Rich has been admitted to the Washington State Bar since 2003 and has focused her practice on tax law since opening Lana Kurilova Rich, PLLC the same year.
- Master of Laws in Taxation (LL.M.): Lana earned her LL.M. in Taxation from the University of Washington School of Law in 2007 in addition to her J.D. from Seattle University School of Law in 2003.
- Former Court of Appeals law clerk: Lana served as Law Clerk to the Honorable Elaine Houghton of the Washington State Court of Appeals, Division II.
- Bilingual: English and Russian: Born and raised in Russia, Lana is fluent in Russian and licensed to practice law in the Russian Federation in addition to Washington State.
- Federal, state, and international scope: Lana represents clients before the IRS, Washington State agencies (DOR, ESD, and L&I), and on cross-border tax matters including FBAR and Form 8938 compliance.
- Direct attorney communication: Clients work directly with Lana Kurilova Rich, not a routing desk. Calls and emails are returned promptly throughout the engagement.
- Pro bono Low Income Taxpayer Clinic: Lana has volunteered with the Low Income Taxpayer Clinic since 2006, helping qualifying taxpayers resolve IRS disputes at no cost.
- Integrated tax preparation and bookkeeping: The firm provides federal and state tax preparation alongside legal representation, reducing handoffs and accelerating resolution.
We invite you to contact our Bellevue, Washington, law office today by phone or by e-mail to discuss your case with our experienced tax lawyer. We are here to help.