S-Corp distribution tax rate

[spiritrider]

Minor point, self-employed Medicare taxes are only 2.9%.

The additional 0.9% Medicare surtax doesn't apply until earned income is > ($200K S/$250K MFJ). It is not part of SE taxes.

Also, is the LLC your sole means of earned income or is it in addition to other W-2 wages? If the latter and W-2 wages will be > $142,800. Electing to treat the LLC as an S-Corp will most likely be counter-productive.

[jfoxcpacfp]

It’s a little complicated, but you’ll pay FICA tax of 15.3% on the 1st $142,800 in earned income (i.e. wages from your S-corp) and 3.8% on earned income above that amount. Most s-corp owners pay themselves at least enough to maximize their solo-k contributions (don’t let your CPA talk you into a SEP IRA), which is above the $142,800 wage base. In this case, distributions will save you the 3.8% Medicare tax part of FICA (the other part is the SS tax of 12.4% on the 1st $142,800.

I won’t get into other advice about how to structure your income, you have a CPA for that. But I will advise that it may not be a good idea to form an s-corp below ~$400k net income (including your salary but after other deductions) and even higher if you’re in CA or TN. Of course, some physicians are required to form s-corps to belong in certain groups, and it is not a choice.

Good luck and welcome to the forum!

[Jospok]

I’m in the process of converting my LLC (single member) to filing as an S-Corp. I’m confused about how distributions are taxed. I’ve read on several blogs that the tax savings on distributions is 15.3% due to exemption from self-employment tax, but on WCI S-Corp articles the tax benefits are said to be 3.8% on distributions. I think this is also the number my CPA quoted. Can anyone speak to this discrepancy? Any insight would be appreciated!