It’s pretty common knowledge, both to tax pros and the IRS that S-Corps are designed to skirt FICA taxes for the most part. Owners generally pay themselves a “smaller” wage income that has SS and Medicare taxes applied to it (FICA taxes), and a larger profit distribution on a K1 that is viewed as “dividend” income from the Corporation. The K1 income is not subject to FICA taxes, effectively saving the business owner 15.3% up to the $142,800 SS wage base. Any K1 amount over that then saves 2.9% Medicare tax portion which is applied to all “earned income”.
Seems in an effort to patch a revenue gap that the Senate is going to propose a 3.8% surtax applied toward a combined income of $400k or above, regardless of whether it is K1 or not, story here:
