S Corp dividends will probably be taxed for 2011 and beyond for self employment tax purposes, under House and Senate Bills, currently in Congress, for personal service type S – firms. A personal service type firm would be a CPA , Attorney, Engineer or other service provider type entity.
Currently S – Corp dividends paid to professional service providers are not subject to self employment tax rates. Self-employment tax rates are currently 15.3 % on the first $106,800 of earnings, and 2.9% on the excess. The IRS has contended that this is a tax loop hole for non payment of taxes, since more dividends are paid than W-2 wages, and professional service providers provide only earnings from services and not capital.
Interesting, when you have to invest money for facilities, and computer systems, oh well!
A question remains whether
W-2’s will be issued to owners of the S – Corps, or will quarterly taxes estimates become the preferred method of paying in withholding and self employed taxes.
