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Suppose a person has a one-person S Corporation, and the corporation is paying the owner/sole employee with a 1099. The owner then pays Self-Employment tax on a Schedule C when filing. Is this compliant?

  • I have edited your question for clarity. Please make sure that this new wording accurately reflects what you really want to ask. If it does not, please edit the question again. – Ben Miller - Remember Monica Nov 20 '20 at 22:48
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No. S-Corp owners should be paid W2 wages and distributions. Here's a pretty good explanation as to why you can't use a 1099. Some notable quotes from the article:

IRS FS-2008-25 states that corporate officers are specifically included within the definition of an employee for FICA (Federal Insurance Contributions Act), FUTA (Federal Unemployment Tax Act) and FIT (federal income tax) withholdings under the Internal Revenue Code.

and

What many employers do not realize is that even though the “independent contractor” who is paid via a Form 1099 pays all of the self-employment, Social Security and Medicare taxes, that the payment of self-employment taxes is a different tax than payroll withholding taxes even though they are both taxed at 15.3%. Thus, the employer could still be found liable for payment of the employer and employee share of Social Security and Medicare taxes (Western Management case).

  • Does this answer apply to a single person Corp or only s-Corp? – user104071 Nov 22 '20 at 1:08
  • If a CPA recommended 1099 misc for the s-Corp owners compensation, what options does the s-Corp owner have – user104071 Nov 22 '20 at 1:23
  • @user104071 the linked article specifically uses a single owner s-corp as an example, so I'd interpret it to apply to all s-corps, including single owner. – TTT Nov 22 '20 at 1:30
  • I mean single person C Corp vs S Corp – user104071 Nov 22 '20 at 1:38
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    @user104071 if a CPA recommended 1099-misc, I'd ask why. They may be able to explain the pros and cons. (One of the cons is probably the risk of audit and how much it could cost you if they do.) Something that isn't covered in that article is what would happen if an audit reclassified 1099 income as W2. You'd have to (re)pay payroll taxes, but I assume you could also amend your personal return to undo the self employment tax due to the 1099, which is basically a wash. – TTT Nov 22 '20 at 1:39

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