Certified Payroll for Owner, S Corp

[oldsparky52]

As long as they get their cut, one way or the other, the IRS doesn't care how you move the money around. The only case where certified payrolls are required, to my knowledge, are for federal or state prevailing wage jobs. In that case, the state or the feebs don't care how you dance with the taxman, they want to know that Joe's pay-stub, whether he's the owner of the business or a day laborer, shows that Joe was paid the prevailing wage for any prevailing wage work he performed during the pay period. If Joe owns the (S-corp) business he can't pay himself a dollar an hour and take the rest as some kind of distribution.

The IRS is not concerned with certified payroll. The IRS does have rules about how little of a salary/wage the owner of the S-Corp takes. The IRS expects the owner/worker to have an income that would be reasonable for what that person is doing. So, for and EC S-Corp the owner while working in the field should be earning and paying SS taxes on a wage that is in line with what an employed electrician would make (the rest of the profit would be taken as a distribution not subject to SS taxes). Take too little and you can get an IRS visit. I think though, the IRS is getting a bit overwhelmed and I doubt they would come after you, but ... they have in the past.

ETA, https://www.firmofthefuture.com/content/what-is-reasonable-compensation-for-an-s-corporation/

 

[gadfly56]

The IRS is not concerned with certified payroll. The IRS does have rules about how little of a salary/wage the owner of the S-Corp takes. The IRS expects the owner/worker to have an income that would be reasonable for what that person is doing. So, for and EC S-Corp the owner while working in the field should be earning and paying SS taxes on a wage that is in line with what an employed electrician would make (the rest of the profit would be taken as a distribution not subject to SS taxes). Take too little and you can get an IRS visit. I think though, the IRS is getting a bit overwhelmed and I doubt they would come after you, but ... they have in the past.

ETA, https://www.firmofthefuture.com/content/what-is-reasonable-compensation-for-an-s-corporation/

OK, now I understand the point you were driving at. We are on parallel paths. Where they meet is that for the period of the prevailing work, the wage that gets reported to the IRS has to match the prevailing wage. Or at least, that's how I see it.

 

[oldsparky52]

OK, now I understand the point you were driving at. We are on parallel paths. Where they meet is that for the period of the prevailing work, the wage that gets reported to the IRS has to match the prevailing wage. Or at least, that's how I see it.

Yea, I took this off rail.

If the OP pays himself regularly (like an employee) this should not be difficult to do (certified payroll). If on the other hand, the OP pays himself sporadically then it will be a lot harder.

 

[kwired]

Not a reasonable wage, he must show he paid himself the prevailing wage, whether for Davis-Bacon or the state prevailing wage, depending on the project. And it isn't about your normal job classification, it's about the work performed. I helped my techs pull wire for about 4 hours on a D-B job, and technically I should have been paid D-B wages for those 4 hours even though I was a salaried, exempt employee. There is no "de minimus" time that doesn't have to be accounted for under the Davis-Bacon Act.

You don't have to pay the prevailing wage, prevailing wage is the minimum wage that must be paid on such jobs. You are certainly allowed to pay more than prevailing wage, and if that happens it would still be "reasonable".

 

[Dennis Alwon]

I agree with the fact that you cannot get away with not paying yourself a reasonable wage and then collect it all in distributions. That's a red flag to the IRS.

The problem becomes how much is a reasonable wage. Unfortunately, the irs will not say so you have to guess and hope they don't fine you later.

I think it is also a red flag if you pay yourself more in distributions than wages.

 

[kwired]

OK, now I understand the point you were driving at. We are on parallel paths. Where they meet is that for the period of the prevailing work, the wage that gets reported to the IRS has to match the prevailing wage. Or at least, that's how I see it.

And for some owners or salaried employees, normal records may not break this down to that detail, so something must be produced to indicate what was paid that equates to the work in question.

Easy to produce a time sheet for hourly paid employees. Larger organizations might still have daily reports of some kind for salaried employees.

One man shows often don't have that kind of detail and will need to create it when it is demanded. What you can create can vary quite a bit and still be considered valid, even if you experienced a net loss on the project.

Other factors maybe play into how seriously they will look into your data. If it is a day or two long project, it is probably more difficult to prove or disprove some information as it relates to that project. If it is a most of year long project, chances are greater that a majority of income reported to IRS comes from that project. So it comes down to some extent of whether what was submitted even seems reasonable, if not they likely will want to check into it more.

 

[gadfly56]

You don't have to pay the prevailing wage, prevailing wage is the minimum wage that must be paid on such jobs. You are certainly allowed to pay more than prevailing wage, and if that happens it would still be "reasonable".

If it's a Davis-Bacon or state prevailing wage job, you most certainly must pay at least the prevailing wage. The job I was on, the prevailing wage for the lead technician was about $84.00/hr. That's to the tech, not what we charged the contractor. That's a little higher than any minimum wage I've ever heard of, and no non-union shop would pay this regularly to a tech. As far as the IRS might be concerned, that wage would more than meet the reasonableness test.

 

[kwired]

If it's a Davis-Bacon or state prevailing wage job, you most certainly must pay at least the prevailing wage. The job I was on, the prevailing wage for the lead technician was about $84.00/hr. That's to the tech, not what we charged the contractor. That's a little higher than any minimum wage I've ever heard of, and no non-union shop would pay this regularly to a tech. As far as the IRS might be concerned, that wage would more than meet the reasonableness test.

Ok we are making this about terminology, that is ok. Yes whatever "prevailing wage" applies for the position of person in question is the minimum they are allowed to be paid on such projects, it is not same thing as the general State/Federal minimum wage, which certainly can be paid on other projects, if you don't want to keep those employees.

 

[dgelectric]

I was a union contractor who was also a S-Corp. When I worked on rate projects; on the certified payroll forms I wrote- "Owner- operator not subjected to prevailing rate". Just make sure that your payroll ledger distinguishes your time in the field and time spent administrative (office, estimating, etc) for auditing purposes.

 

[gadfly56]

I was a union contractor who was also a S-Corp. When I worked on rate projects; on the certified payroll forms I wrote- "Owner- operator not subjected to prevailing rate". Just make sure that your payroll ledger distinguishes your time in the field and time spent administrative (office, estimating, etc) for auditing purposes.

So, I went to the DOE's web site where they have an excellent FAQ regarding Davis-Bacon. See here. The upshot is, if you are a genuine sole proprietor, you do NOT have to pay yourself the D-B wage. Learn something new every day. However, in NJ, unlike NY, owner/operators are covered under the state prevailing wage law. From the NJ web site:

When engaging in public works projects, are owner/operators required to pay themselves prevailing wage, and file certified payrolls?
Yes, there are no exemptions for owner/operators or sole proprietors.