Are Distributions from an S Corporation subject to self-employment tax?

Go to the irs.gov website and use the search box for S CorporationsS corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income.

To qualify for S corporation status, the corporation must meet the following requirements:

• Be a domestic corporation

• Have only allowable shareholders

  • including individuals, certain trust, and estates and

  • may not include partnerships, corporations or non-resident alien shareholders

• Have no more than 100 shareholders

• Have one class of stock

• Not be an ineligible corporation i.e. certain financial institutions, insurance companies, and domestic international sales corporations.

In order to become an S corporation, the corporation must submit Form 2553 Election by a Small Business Corporation (PDF) signed by all the shareholders.

Filing Requirements:S Corporation Compensation and Medical Insurance IssuesWhen computing compensation for employees and shareholders, S corporations may run into a variety of issues. The information below may help to clarify some of these concerns. Reasonable Compensation