I own a company in which I earn well over the SS limit. If I
pay myself salary in a second company, can I be exempt from
withhold SS if I don't draw any salary until after I'm over
the limit in company A? Although I realize I can get the
overwithholding back on my 1040, the employer's portion is
What you're overlooking is that FICA is an equal tax on the
employer and the employee, and each pays to the current
earnings limit. Since there are two corporations paying
you, both have to pony up the FICA.
Looking at just this aspect it would make sense to merge the
corps, but there could be dozens of reasons not to.
Nope, you can't self-exempt yourself from the Social
Security and Medicare withholding and company matching.
Yup, you'll get back any over withholding on Social
Security, but not Medicare (it has no limit).
Nope, the company can not get back a similar amount due to
your over withholding of Social Security taxes.
FYI: You'll also have double the FUTA and SUTA tax in most
If the second company contracts with the first company for
services (that you provide to the second company), company B
can take the expense deduction, Company A reports it as
income, and they increase your salary accordingly for a net
wash (or close to it). Run that by your CPA or EA to see
if it makes sense given your specific set of circumstances
and to hold it up to local laws.
Paul Thomas, CPA
firstname.lastname@example.org (Arnie) posted:
Aha! Part of the plot is revealed.
Since every company is an "entity" presumed to have no
knowledge of the "other" companies around the country, each
company must follow the rules independent of any such
"knowledge." This, of course, accrues to the benefit of the
AFAIK, there is no provision for employers to receive credit
for "unnecessary" FICA tax shares paid in behalf of
employees whose total income exceeded the limit, because of
secondary employment for another firm. Likewise, knowledge
of such facts cannot be used to discontinue or diminish the
amounts of FICA withheld or paid by any company.
In general, no. (And the company portion is lost either way.)
If you own both companies, why not have company A sell your
services to company B, while A pays you? (Actually, you
need only own A to use that method.) Then there's no issue
of double SS taxes.
The normal rule is that each company would have to withhold
and pay social security taxes independently, resulting in
double payment of the employer's portion.
There is an exception to this rule, found in Code section
3121(s), in the case of employment by related corporations
if the related corporations use one of the related
corporations as a common paymaster. I'd check out this
section with your accountant--you may be able to avoid the
No, the second company cannot, in general, take into account
the wages the first company paid to you.
However, if the two companies are "related corporations" for
purposes of Code Sec. 3121(s), and if there is a common
paymaster (i.e., if the companies have an agreement between
them that one company will act as paymaster for the other,
and that the paymaster will disburse remuneration to
employees and will keep books and payroll records), then you
should be treated as having one "employer" for FICA
purposes, in which case your aggregate wages from both
companies would be taken into account in determining both
the employer and employee portion of the FICA tax.
Well thats the direction we're going, except its a 2 man
company and we need 2 people to get group health insurance.
I notice that Steven Jobs draws a salary of $1. I'm sure he
still qualifies for benefits. Can a CEO elect to pay himself
less than the minimum wage in a company that doesn't make
any money? Or another angle, if the company would lose money
if the CEO drew salary, can he elect not to pay himself to
avoid a loss?
The minimum wage seems to apply only to workers paid by the
hour and not to people on salary, though I don't know the
technical difference, if any beyond the declaration, between
As for your second question - certainly. I am the President
and only employee of a consulting firm registered in NY as a
C Corporation. My salary varies with the funds available at
the end pay period - usually the end of each quarter, and
perhaps more frequently if I have a good quarter.
I have often had quarters when I drew no salary, either
because funds were low and/or I needed to hold some funds
for an upcoming purchase or project. My company operates on
a cash basis, so money usually arrives 30 to 90 days after I
do the work. That means that I can be very busy during a
quarter when no money has come in.
Replace xxx with vdr in e-mail address.
On salary is not the same as exempt. Someone can be paid
hourly and be exempt, and on salary and not be exempt.
If you're paid hourly, but are exempt, it means they don't
have to pay you overtime for the extra hours you work. When
you're on salary, but not exempt, they have to pay you extra
for the extra hours you work.
That's a mistake that a lot of companies make, equating the
two. But they can get into a lot of trouble if they don't
understand the difference.
So far everyone seems to have avoided the issue of not
paying FICA/Medicare taxes on this income.
If a CEO is paid a salary of $1 and restriceted stock of
$1million, which is notg uncommon in some situations, how
does FICA/Medicare tax get collected?
If poor Joe Taxpayer who owns a small S Corp or even C Corp
tries to say he agreeed to work for only $1, how far would
he get? Why does a CEO of a Firtune 500 get to take just a
$1 salary? And how does FICA/Medicare get their cut?
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
That Jobs may be paid a salary of $1 for financial
accounting purposes does not necessarily mean that he
reports a salary of $1 for income tax purposes.
As a general rule, particularly in closely held corporations
where the executive are also the principal shareholders, the
corporation must pay the executive "reasonable
compensation," meaning not too much, not too little, but
just the right amount, given the nature of the work done,
what an unrelated corporation would pay for that work, and
the corporation's financial condition (to give a very brief
gloss on the subject).
The IRS has pursued closely held corporations and their
executives (and won) both on the claim that reported
compensation was too low (and that therefore some amount of
the "dividends" or other distibutions received as a
shareholder were in fact disguised compensation) and on the
claim that reported compensation was too high (and that
therefore a portion of the reported compensation was in
reality a disguised dividend).
The end result is that you cannot pay yourself $1 and "get
away" with reporting that as your compensation for services
rendered unless, under the circumstances, that is a
reasonable amount of compensation (e.g., if the company is
under water and has no free cash left over after paying its
other bills) and in particular, any other distributions you
receive from the company are quite likely to be
recharacterized as disguised compensation. That, of course,
may provide the company with a bigger deduction for
officers' compensation than it originally claimed; however,
if the statute of limitations hasn't foreclosed filing an
amended return, the company may still be estopped from
claiming the higher deduction (yes, it can happen).
How does the income tax on the $1million get collected?
It has happened; one company (David's Cookies, ISTR) the
President/Owner took no salary the year before going public
in order for the company to look profitable.
Tell your company you want to work for $1 a year and see
just how easy it is.
Somebody pays it.
It seems logical that if a company makes a lot of money (ie
Apple) and the exec takes no salary that it might raise a
fica quesion, but my question was if the company makes no
money can the executive draw less than the minimum wage, and
I think the answer is clearly "yes". i really have no
function in the company except to oversee it and to do
payroll. I don't want to get hit with paying the 7.5% FICA,
which is really a double hit as I get paid by another
company well over the FICA limit.
The disctinction between an Apple and a mom-and-pop
operation seems significant. If there's no money to collect
then it doesnt seem worth anyone's effort to try to collect
Do you mean to say it say:
does not -MAKE A PROFIT- from it's revenue!?
You mention PAYROLL, what is this payroll for?
This is not relevent, if you are performing a function that
would be compensated for, the taxes are due, no dancing
If this ENTITY is a client of another closely held,
associated or controlled corporation providing services to
it's parent, funding for those operations should include
appropriate dollars to compensate -YOU- for your service to
Granted, in the END the subsidiary may make no PROFIT, but
it is providing services, and your participation is key to
Stop dancing around the issue!