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Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 355
Experience:  Former IRS Revenue Agent
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I need to issue a monthly draw to an employee. How should

Customer Question

Hello!
JA: Hi. How can we help?
Customer: I need to issue a monthly draw to an employee. How should this be taxed?
JA: The Accountant will know how to help. Please tell me more, so we can help you best.
Customer: Okay, the employee is being paid a salary, and a bonus. This payment is a draw against any potential future commissions. Is the draw payment subject to employee/employer FICA, Medicare, Federal and State withholding?
JA: Is there anything else the Accountant should be aware of?
Customer: That's about it - this is the first time issuing a draw payment to an employee. We'd like to get it right - the first time!
Submitted: 4 months ago.
Category: Tax
Expert:  Dr. Fiona Chen replied 4 months ago.

Dear Employee Draw,

Any amounts paid to employees to compensate their services, no matter how large or small, as long as it is countable in terms of dollar amount, salary or commission, all subject to payroll taxes. So, this employee draw is part of his/her salary and is subject to all payroll taxes, federal or state, etc. At year end, it is reported on W-2 as wage income to the employee.

The link attached below is a reference on the subject.

Please feel free to follow up with your question. Otherwise, I am ready to be evaluated by you for your satisfaction with my answer to your question.

Regards,

Grace C.

https://www.irs.gov/irb/2008-24_IRB/ar08.html

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