FICA withholding question

No, you are not exempt from SS witholding by a 2nd employer. Yes, the employer's portion is lost.

No. Withholding by Company B has nothing to do with Company A withholding, and is required for all salary paid by Company B.

That's the way it works, sorry.

No

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.

-- Phil Marti Clarksburg, MD

"Arnie" wrote

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 cases. 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 snipped-for-privacy@bellsouth.net

snipped-for-privacy@aol.com (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 government. 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. Bill

No.

-- Vic Roberts Replace xxx with vdr in e-mail address.

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. Seth

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 double taxation.

--Chris

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.

You could simply have one corp. pay a management fee to the other.

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? TM

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 the two.

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.

-- Vic Roberts Replace xxx with vdr in e-mail address.

Only people who meet certain criteria (managerial, professional, etc.) can be on salary (technically, "exempt"). Seth

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. Stu

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?

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.

Seth

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 anything. TM

Do you mean to say it say: no revenue?!? or 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 allowed.

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 this subsidiary. Granted, in the END the subsidiary may make no PROFIT, but it is providing services, and your participation is key to it's operation. Stop dancing around the issue!