Instead, corporate shareholders need to take these cash withdrawals as shareholder distributions. As such, they will still be subject to Social Security and Medicare taxes – thus negating the benefit of the S-Corporation. Bonuses have to be run through payroll and are de facto employee earnings. Business owners must give themselves a reasonable salary, as required by the IRS.Īnd that often leads to the question: “how do I pay myself if I need more money?” The initial inclination (a bonus) is actually the worst option. Again, the major advantage to the S-Corporation is that earnings in excess of officer payroll earnings are not subject to self-employment (Social Security and Medicare) taxes. The question? “How do I pay myself if I need more money than my salary? A bonus?”įor perspective, reference my article from last year explaining the differences between different corporate setups. But when I’m meeting with prospective clients or talking to existing clients I seem to get one question more than any other, so I thought it might be good to write a short blurb on it. The tax benefits, the drawbacks, potential penalties, and new tax laws affecting them. I’ve written a number of times on some of the nuances of S-Corporations. There is however at least one instance when an honest-to-goodness bonus is a bad idea. Bank’s preposterous “Buy 1, Get 7 Free” and similar deals. Some companies have even made a science of creating the illusion of a bonus – such as Jos. They’re a prize – and all for no additional cost. Bonus bucks, bonus bites, and if you’re really fortunate a bonus from your employer. When we think about the idea of a bonus, there is almost invariably a positive connotation to it.

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