S-Corp payroll setup
After electing S-Corp, you must run yourself through payroll. Here is the practical setup.
Electing S-Corp creates an obligation to take a "reasonable salary" as W-2 wages. The practical implementation requires payroll infrastructure.
Choose a payroll provider
Gusto is the most popular for single-employee S-Corps. About $40/month base + $6/employee. Full federal/state tax filing, W-2 issuance, direct deposit, contractor payments. Handles multi-state.
Justworks is a PEO. Higher cost (~$50-$130/employee/month) but provides health benefits, workers comp, and is the right fit if you have multiple employees and want benefits administration.
ADP RUN is more enterprise but works for solo S-Corps. Pricing varies.
Set the salary
Pick a reasonable salary based on BLS data for your occupation in your metro. For a software consultant in Austin: $90K-$140K. For an Etsy seller in a small town: $30K-$50K. Document your reasoning in case of audit.
Common pattern: salary = 50% of expected total compensation, paid monthly. Distributions = remainder, paid quarterly.
Quarterly filings
Form 941 (federal payroll tax return) is due quarterly. Your payroll provider files this automatically. State unemployment + state withholding registration required in your state of operation.
Annual filings
W-2 to yourself (and any employees) by January 31. W-3 to SSA. State annual unemployment reconciliation. Form 940 (federal unemployment) by January 31.
Common mistakes
- Setting salary too low. IRS audits hit on this.
- Treating distributions as if they avoid all tax. They avoid SE tax, not income tax.
- Forgetting state-level payroll obligations.
- Not running payroll consistently. "I will catch up at year-end" creates compliance issues.
Need help filing?
Our accountant directory has specialists who handle this exact form across foreign-owned LLCs, S-Corps, and high-volume single-member LLCs.
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