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Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 12020
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have a question regarding our tax return. My husband

Customer Question

I have a question regarding our tax return. My husband have a S corporation and he is the employee of the corporation. Basically he is on payroll. He started to be on payroll from October of 2014 and per our accountant request we increased his pay check in 2015. Our corporation income for 2015 and 2014 are very close be the difference of $2000 but his payroll for 2015 obviously was about $90000 more than 2014.
We paid our tax quarterly in 2015 the same amount that we paid for 2014. ( Our accountant gave us schedule to pay our tax quarterly based on our income in 2014) And my husband paid tax on all of his paychecks.
My question is:
Do we owe any other taxes or not?
Our accountant is telling us that we still owe another $30000 to IRS for his paychecks but I doubt it because we already paid taxes on all of his paychecks. Could you please advise me on this?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.
Hi, from the information you've provided here I would agree with you....Is it possible that the CPA is simply talking about the additional payroll without taking into account the additional withholding payments?...OR is it possible that the CPA is talking about the additional Social Security and Medicare tax?...Income, for an S-Corp shareholder/employee, as you know, is received in two ways (1) through the salary, and (2) through the profits allocated on the 1120-S' K-1 (which is the profit over and above the salary and other S-Corp expenses)....The salary is subject to both the employee half (your husband) of social security and medicare, 7.65% of salary, (withheld and paid-in as payroll, AND then matched, an additional 7.65%, by the S-Corp as the employer's half (also Your Husband)....But the amount of profit paid through the K-1 is not charged with social security and medicare AT ALL, so if a much larger portion of the total compensation was received as salary the there would be that additional 15.3% of taxes owed on that amount....This may explain at least a portion of it....let me know what questions you ave from here...Lane......I hold a law degree (JD, Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security/Medicare, estate, corporate & tax advice since 1986
Customer: replied 1 year ago.
thank you so much for your respond.
Actually his pay check is $5000 every 15 days but he gets abut $3800 after tax. This is the detail of the deductions.
SALARY 3 1.00 5000.00 1.00 116 5000.00 30000.00 5000.00 FIT:$555.42 FICA:$310.00 MED:72.50 SIT:215.73 SDI/County:$45.00 .00 NET:$3801.35Based on this do you thinks he still owes another $30000 to IRS? And As I mentioned we already paid our quarterly for the corporation profit.
Customer: replied 1 year ago.
Our corporation profit for 2014 was $194000 but for 2015 was $196000
As I mentioned he got about $30000 salary on 2014 since he started on October to be on payroll and for 2015 he got $12000 salary.
Customer: replied 1 year ago.
If you have any other question please let me know.
Expert:  Lane replied 1 year ago.
you might be underwithholding a LITTLE on the payroll ... If the withholding on he profit is essentially the same...The the additional salary would be at 28%. See this:... 39.6% on taxable income over $406,750.Married Filing Jointly or Qualifying Widow(er) Filing Status[Tax Rate Schedule Y-1, Internal Revenue Code section 1(a)]10% on taxable income from $0 to $18,150, plus15% on taxable income over $18,150 to $73,800, plus25% on taxable income over $73,800 to $148,850, plus28% on taxable income over $148,850 to $226,850, plus33% on taxable income over $226,850 to $405,100, plus35% on taxable income over $405,100 to $457,600, plus39.6% on taxable income over $457,600......So if the estimated payment is enough to cover the K-1 profit, then about 30,000 would be at 28% and the remaining 90,000 would be at 33%...And if you're only withholding at 24% on the salary (3800/5000) then that could account for about another 10,000 or so (difference between withholding and the actual 33% on that incremental income.
Expert:  Lane replied 1 year ago.
See this, as a way to "back into" an answer (I assumed withholding of 1200 semi-monthly - so 28800 for the year ... so this is what would be owed against the remaining income (estimated taxes included)/..Federal Income Tax - Tax Year 2015Income Tax CalculationsFederalGross Income$310,000.00Deductions for AGI($0.00)Adjusted Gross Income (AGI)$310,000.00Deductions and Personal ExemptionsStandard Deduction (Married)($12,600.00)Personal Exemptions (Two dependants)($8,000.00)Taxable Income$289,400.00Federal Income TaxShow Calculations$71,031.00Additional TaxesFICA Tax (Payroll social security tax on $118,500, see note)($7,347.00)Medicare Tax (Payroll medicare tax on $120,000)($1,740.00)FICA Tax (Self Employment social security tax on $118,500, see note)($14,694.00)Medicare Tax (Self Employment medicare tax on $190,000)($5,510.00)Gross Tax$100,322.00Tax Credits & PaymentsFederal Tax Withholding & Tax Payments($28,800.00)Owed Tax$71,522.00Gross Income $310,000.00 Total Tax (Pre-Credits) $100,322.00 Total Owed Tax $71,522.00 After-Tax Income $238,478.00 Effective Tax Rate 32.36%AnnotationsYou reported $190,000 of self-employment income. For this income, you are liable for self-employment taxes of 12.40% (FICA) and 2.90% (Medicare).Your taxable earned income is greater than the current FICA wage cap of $118,500. Any wage income over this amount is not subject to social security taxes (but is subject to Medicare taxes).Your taxable earned income is greater than the current FICA wage cap of $118,500. Any wage income over this amount is not subject to social security taxes (but is subject to Medicare taxes).
Customer: replied 1 year ago.
Thanks for your answer. So based on what I understood we owe about $10000, the difference between the 24% of withholding and 33% on $90.000 not on $120000
And I am sure the estimated payment for the profit was enough.I will share this information with my husband and if we have any other question I will contact you.Thanks again,
Expert:  Lane replied 1 year ago.
That's right ... again, all other things being equal (don't know what the CPA's assumptions were, whether state taxes were involved, whether he/she was taking estimated payments into consideration, etc...i WOULD appreciate Your positive rating … (by using those the stars or faces on your screen, and then clicking “submit”) ..or I'm working for no crediting at all here....But i'll be available for questions after you rate....Thanks,Lane..