If you pay yourself a reasonable salary for the services you provide to your S-corp, you will pay self-employment taxes on the salary you receive. This means that you would be responsible for paying both the employer and employee portions of Social Security and Medicare taxes on your salary. The employer portion of these taxes is currently set at 7.65% of your salary, while the employee portion is also set at 7.65%.
If you pay yourself a salary that is less than the profits of the S-corp, the remaining profits will be passed through to you as a shareholder and will be subject to income tax at your individual tax rate. This income is not subject to self-employment tax.
So, if you pay yourself half of the profits of your S-corp as a reasonable salary, you will pay self-employment taxes on that salary, but not on the remaining half of the profits that are passed through to you as a shareholder.
It’s important to note that determining a reasonable salary for your services can be complex, and there are many factors to consider, such as industry standards, job responsibilities, and the profitability of the business. It’s a good idea to work with a qualified tax professional or business advisor to help you determine the appropriate salary and ensure that you are meeting all of your tax obligations.