If you have a profitable S Corporation, then we have probably already discussed the importance of taking a reasonable salary for the services you perform. Well, in case you have forgotten, I wanted to take a moment to remind you about S corp wages before the State of Florida does.
Florida is once again cracking down on S Corp shareholders who don’t take reasonable salaries. Unemployment is at an all time high in Florida and collecting unemployment taxes is of crucial importance to the state. In addition, Florida works with the Federal Government to ensure that companies are complying with payroll laws and is rewarded with Federal unemployment dollars.
Florida law states that before taking distributions of income from an S Corporation, officers of the company must take a reasonable wage subject to Florida Unemployment Compensation Tax. Federal law is even more stringent because they are looking to collect Social Security and Medicare taxes, something that S Corp income is not subject to. We recommend reviewing your specific situation to determine what a reasonable wage is for the work that you do. The last thing you want is to get into hot water with the IRS or Florida Department of Revenue.
So how is Florida going to know if you are taking a reasonable amount of S corp wages? Florida does not generally require S Corporations to file tax returns with the state, and there is no state income tax. One thing they are taking a closer look at is your Sales Tax returns. If you file for a Sales Tax Certificate, they will check to see if you have filed for an Unemployment Tax ID. If you are paying high sales taxes, they will see what you are reporting for wages. If you are not reporting wages or under-reporting wages, you may be subject to a payroll audit.
If you would like to discuss your companies payroll, give us a call and we can help guide you through your unique situation.