No… - Posted by JPiper
Posted by JPiper on December 30, 1998 at 12:53:07:
If I had gotten the below answers I would be confused…so here’s one more.
The answer to your question is “no”…if you are the officer of a C corp you DO NOT pay self-employment tax. As an officer of a C corp you are an employee. As an employee you DO NOT pay self-employment tax.
What you do pay is the normal taxes that all employees pay…social security tax, withholding taxes, etc. In addition, your corporation will pay an amount equal to your social security tax for you. The total of the amount you paid personally plus the amount that the corporation paid for you, will approximately equal the self-employment tax. (I say approximately because in the back of my mind self-employment tax is somewhat higher than the combination of employee/employer tax, but I could be wrong on this…memory fades about these things).
Maybe I’m just being picky…but George has given a good answer below, but the title should be “no”, not “yes and no”. Bronchick gives a good answer as well, but the title “yes, always” is completely wrong for the question posed. Self employment tax is never paid by an employee. JHyre give the answer “yes” with no explanation, but again, corporate employees DO NOT pay self-employment tax. They do pay a similar tax called social security tax, with the employer making an equal contribution.
Finally, I would comment on the “dividend” payment idea versus the payment of salary. Payment of a dividend will avoid the social security tax, since it is not earned income. However, a dividend payment is NOT a tax deductible item at the corporate level. Therefore, dividends are paid in “after-tax” dollars. Guess what?? The corporate tax in a C-corp equals or exceeds the combination social security taxes that would be paid by the employee/employer on earned income (salary or bonus). Either way, dividends or salary/bonus will be taxed at the personal level when received. Therefore one has to wonder about the wisdom of paying dividends as an alternative to salary/bonus. There are better methods of paying yourself money…some of which are covered by Bronchick in his course, others that you may receive from your CPA.