Of course, the corporation’s salary to its officers and employees counts as earned income for Social Security purposes. FICA and federal & state taxes are withheld.

In my first year of unemployment, my tax lawyer decided that I was not required to take any drawdown or salary from The Copyeditor’s Desk, because (as I understood her) the corporation did not earn enough to require that.

Because my salary as a contract adjunct instructor bumped up against the SS income limit, even the 10 grand the corporation earned would have put me afoul of that limit, if I the little enterprise had been organized as a sole proprietorship. But because we incorporated it as a pass-through entity and because it did not pay me a salary in that year, the harm caused by running a (literally!!!) a few dollars over the limitation was contained to one month.

I have yet another question related to the income of the S Corporation not being counted as earned income. It makes sense to me that the dividend portion would not be counted. However, it would seem that the ‘reasonable salary’ that you receive would be counted as earned income for social security purposes. Clearly you are saying it is not. Could you say more about the basis for that conclusion? Do you have any SS documents online that might verify this?

Thanks. Michael

If you work more than 45 hours per month SS could determine that you are not really retired and it makes no difference if you are employed by Acme Inc. or your S-Corp.

I’m sure that will provoke another question.

We chose an S-Corp as it avoids double taxation in a C-Corp. The S-corp is a pass through meaning the S-Corp pays all the expenses and what is left goes to the shareholders (employees, officers) as salary or dividends. The ideal situation is the S- Corp ends up with a small amount of money at the end of it’s fiscal year.

Getting to SS was a pain because I feel they are suspicious that you are trying to cheat them

I haven’t had to contact them since I got my first deposit into our checking account. They did dump another extra $580 deposit followed by a letter stating that they underpaid me based on my income.

This year I am making less than I expected so I expect they will adjust again in 2012.

Besides, you do pay for the IRS: it’s called “taxes.” It is true that many of their clerks have no idea what they’re talking about. But at least if you can get their advice in writing you have something to present at an appeal.

I really like the advice above of going in to talk to an IRS employee, or calling the SS folks – the IRS/SS definitely have your best interests in their hearts! NOT.

You get what you pay for!