How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Law Educator, Esq. Your Own Question
Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Employment Law
Satisfied Customers: 117358
Experience:  20+ Years of Employment Law Experience
Type Your Employment Law Question Here...
Law Educator, Esq. is online now
A new question is answered every 9 seconds

My husband and I own a small construction business in Florida

Customer Question

My husband and I own a small construction business in Florida and we are Incorporation.
Last year worker's Comp came in to Audit us that was June of 2014. My worker's comp.
Company sent me a bill for $4000.00 Dollars. Their telling me if you own a construction
business in the state of Florida and you are incorporation that each officer in the corporation
must make $24.000 IF NOT YOU WILL BE FINED . My question is ? Is that's true if so how
can I get around it. I just got another audit this month and I know the results are going to be the same. My husband and I are thinking about getting out of this business,. Please can you shed some light on this. We don't know what else to do.
Submitted: 2 years ago.
Category: Employment Law
Customer: replied 2 years ago.
End of question
Expert:  Law Educator, Esq. replied 2 years ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
The workers compensation people are not attorneys or wage experts, so they told you only partial information. There is no law saying all officers of a corporation (S-Corp or C-Corp) must make at least $24,000 per year. However, the IRS will look at the S-Corp owners trying to hide wages and mischaracterize them as dividends or profit sharing to try to avoid paying taxes.
For example, a US Tax Court held an employer cannot avoid federal taxes by characterizing compensation paid to its sole director and shareholder as distributions of the corporation’s net income rather than wages. See: Veterinary Surgical Consultants, P.C. vs. Commissioner, 117 T.C. 141 (2001).
Furthermore, the $24,000 is NOT a magical number either. The courts have held in one case where a corporate officer/shareholder received wages of $24,000 per year and large distributions that there was no dispute that the shareholder was an employee, but the issue dealt with the reasonableness of the wage amount. When challenged on the reasonableness of the wages, the taxpayer contended that the corporation only intended to pay wages of $24,000 and that its intent was controlling. The court held the test is whether the payments received by the shareholder were truly remuneration for services performed, thus the intent to limit wages is not a controlling factor. See: David E. Watson, PC vs. U.S., 668 F.3d 1008 (8th Cir. 2012).
So, what this means and what the workers compensation carrier is trying to convey is that you must pay yourselves as owners a reasonable wage based on the work performed by you and your husband.