S-Corp payroll setup

Electing S-Corp creates an obligation to take a "reasonable salary" as W-2 wages. The practical implementation requires payroll infrastructure.

Choose a payroll provider

Gusto is the most popular for single-employee S-Corps. About $40/month base + $6/employee. Full federal/state tax filing, W-2 issuance, direct deposit, contractor payments. Handles multi-state.

Justworks is a PEO. Higher cost (~$50-$130/employee/month) but provides health benefits, workers comp, and is the right fit if you have multiple employees and want benefits administration.

ADP RUN is more enterprise but works for solo S-Corps. Pricing varies.

Set the salary

Pick a reasonable salary based on BLS data for your occupation in your metro. For a software consultant in Austin: $90K-$140K. For an Etsy seller in a small town: $30K-$50K. Document your reasoning in case of audit.

Common pattern: salary = 50% of expected total compensation, paid monthly. Distributions = remainder, paid quarterly.

Quarterly filings

Form 941 (federal payroll tax return) is due quarterly. Your payroll provider files this automatically. State unemployment + state withholding registration required in your state of operation.

Annual filings

W-2 to yourself (and any employees) by January 31. W-3 to SSA. State annual unemployment reconciliation. Form 940 (federal unemployment) by January 31.

Common mistakes

• Setting salary too low. IRS audits hit on this.
• Treating distributions as if they avoid all tax. They avoid SE tax, not income tax.
• Forgetting state-level payroll obligations.
• Not running payroll consistently. "I will catch up at year-end" creates compliance issues.

Need help filing?

Our accountant directory has specialists who handle this exact form across foreign-owned LLCs, S-Corps, and high-volume single-member LLCs.