Do LLC members have to pay social security tax on their profits even if they file as an S-corp.?

Question

LLC's are becoming very popular. We were recently set up as an S-corp in a new business venture, on the advice of attorney.

Answer 1

OK, so you could have formed a corporation and made an S election, but instead you formed an LLC, elected to have it treated as a corporation and then filed an S election. Does your state treat S corporations differently from LLCs and if so, how will they treat your entity?
At any rate, if your LLC/S corp is operating an active business and its member/shareholders are participants as officers or employees, they would be subject to social security like any other S corporation. It is no longer an LLC/partnership for federal tax purposes.

Answer 2

you want to ask the guy precisely what you're. If the partnership makes a ton of money, will you share contained in the income or are you restricted to the certain charge? If the partnership LOSES money, will you lose money as well? On an afternoon after day foundation, will you've any income probability, will you administration your own artwork or what? in case you in user-friendly words receives a fee and he nonetheless tells you what to do, then you surely are an worker. He ought to pay you on a W-2 and withhold the taxes correct. (Please tell me that in user-friendly words go with workers joined administration; if each and every worker is without caution a "better 1/2," yet does an same artwork they did very last Friday, then i imagine he's attempting to get out doing this correct.) in case you'll share the disadvantages/rewards of the partnership and would make judgements for the partnership, then yeah, perhaps your are better 1/2. no one says you won't be able to sometime be the boss and be companions consisting of your previous boss. i trust you're a more acceptable 1/2 in a PARTNERSHIP and he did not provide you with stocks yet an possession share in both capital or income or both. Your certain charge is reminiscent of being an self reliant contractor, yet you'll obtain a form 1065 agenda ok-a million on the end of the three hundred and sixty 5 days. No taxes will be withheld, so certain, you want to make predicted taxes on the federal and state aspect. I estimate you'll want to deliver the IRS a minimum of 30%. I even do not recognize what NJ will assume. My estimate for IRS is depending on the concept in case you dummied up a tax go back utilizing the certain charge quantity (pretend that's wages for estimation applications in user-friendly words) and guessing at your finished tax. Then upload 15% to that for self employment taxes.

Answer 3

You're in luck. While an S-corp's earnings are pass through earnings that is reported and taxed on the shareholder's personal tax returns, the S-corp income IS NOT considered self-employment income. So no social security or medicare taxes are assessed on this income. This is different from partnerships. Partnership income IS considered self employment income, so each partner is not only subject to social security and medicare taxes on their share of partnership income, they have to pay both the employer and employee portion.

Answer 4

S Corp income is subject to Social Security tax to the extent it is earned income. If the S Corp income is from a passive investment (basically you do no work) then it would not be subject to FICA tax. However, if your efforts are part of the income process then it is subject to FICA.