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:

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James A. Daniel

James A. Daniel - Financial Planner


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