Tax & compliance
Shareholder Distribution
Formula reviewed by Tahir Asif, CMA
A payment of S corporation profit to an owner that is not wages and is not subject to payroll tax, if reasonable wages have already been paid.
S corporation profit passes through to the owners and is taxed on their personal returns whether or not it is paid out. A distribution is the cash actually paid to an owner. Distributions are not wages, so they carry no payroll tax, but they are treated as wages to the extent they replace reasonable compensation for services.
Distributions are generally limited to the owner’s basis in the stock, and they should be paid pro rata to all shareholders of the same class.
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