This is a common question. You are self-employed or owner of a business. You do not want to deal with paying quarterly tax estimates to the IRS. There are many companies offering payroll services. The payroll company can manage all your payroll needs for you. If you pay yourself sufficient wages, you will get a refund at the year. Seems easy. Well it is. But are you are unsure if you can put yourself on payroll.
Can I pay myself wages if I am self employed?
The answer to this question depends on how the company is set up for tax purposes. Sole Proprietor, LLC, Partnership, C-Corporation, or S-Corporation. Overall, according to Treasury Reg. Sec. 301.7701-2(c)(2)(iv)(D)(iii). You can not put yourself on payroll unless your company is taxed as C-Corporation or S-Corporation.
Sole Proprietor – No
You can not put yourself on payroll. You can hire employees and maintain payroll with a Employee Identification Number (EIN). But the owner can not be treated as an employee.
LLC – Depends
You can not put yourself on payroll if the LLC is treated as a disregarded entity or partnership. You can put yourself on payroll if the LLC elects to be treated as a C-Corporation or S-Corporation. LLCs are a little tricky. Check with your accountant if you are unsure on how your LLC is treated for tax purposes.
C-Corporation – Yes
You can put yourself on payroll.
S-Corporation – Yes
You can put yourself on payroll. In fact, you are required to put yourself on payroll. You must pay yourself sufficient wages if your business is treated as a S-Corporation.
IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.