Do S Corporations Pay Quarterly Taxes?

S corporations offer corporate liability protection with partnership tax benefits. This structure allows business income, losses, deductions, and credits to pass through directly to the owners’ personal tax returns. Questions often arise regarding quarterly tax obligations.

Understanding S Corporation Income Taxation

An S corporation functions as a pass-through entity for federal income tax. The business generally does not pay federal income tax at the corporate level. Instead, profits and losses pass through to shareholders, who report these amounts on their individual income tax returns (Form 1040). This avoids the double taxation inherent in C corporations.

S corporations file Form 1120-S with the IRS, detailing the company’s income, deductions, gains, and losses. The S corporation issues a Schedule K-1 (Form 1120-S) to each shareholder.

The Schedule K-1 informs shareholders of their share of the S corporation’s income, deductions, credits, and other financial items. Shareholders use this information to complete their personal income tax returns. While federal income tax flows through to shareholders, some states may impose their own entity-level taxes on S corporations.

Shareholder Estimated Income Tax Payments

Because S corporation income passes directly to shareholders and is not subject to federal income tax withholding at the corporate level, shareholders are responsible for making estimated tax payments throughout the year. This applies to individuals, including S corporation shareholders, who anticipate owing at least $1,000 in federal income tax for the year.

Shareholders calculate estimated tax by projecting their total income, including their share of S corporation profits, other income, deductions, and credits. This total tax liability is divided into four quarterly payments. Form 1040-ES provides a worksheet for calculating these payments.

To avoid underpayment penalties, shareholders can use “safe harbor” rules. These rules require paying at least 90% of the current year’s tax liability or 100% of the prior year’s. For higher-income taxpayers (AGI over $150,000 in the prior year), the prior year’s safe harbor increases to 110%. Adhering to these thresholds prevents penalties.

S Corporation Payroll Tax Responsibilities

Beyond pass-through income, S corporations have payroll tax obligations if they employ individuals, including owner-employees receiving a salary. An S corporation is responsible for withholding and remitting federal payroll taxes, including Federal Insurance Contributions Act (FICA) taxes (Social Security and Medicare).

Both employer and employee contribute to FICA taxes. S corporations are also responsible for Federal Unemployment Tax Act (FUTA) taxes, paid solely by the employer. State-level payroll taxes, such as state unemployment insurance (SUI), also apply to S corporations with employees.

S corporation owner-employees must pay themselves a “reasonable salary,” subject to payroll taxes, including FICA. This rule prevents owners from minimizing payroll taxes by taking all profits as tax-advantaged distributions, which are generally not subject to FICA taxes. S corporations report and pay these federal payroll taxes quarterly using Form 941.

Quarterly Tax Payment Procedures and Dates

Both shareholder estimated income taxes and S corporation payroll taxes follow quarterly payment procedures and deadlines. For individual shareholders, estimated income tax payments are due on April 15 for income earned from January 1 to March 31. The second payment covers income from April 1 to May 31 and is due on June 15.

The third installment, covering income from June 1 to August 31, is due on September 15. The fourth payment, for income earned from September 1 to December 31 of the previous year, is due on January 15 of the current year. These dates are adjusted to the next business day if they fall on a weekend or holiday. Shareholders can make these payments through various methods, including IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or by mailing a check with a Form 1040-ES payment voucher.

S corporations submit Form 941 with due dates of April 30, July 31, October 31, and January 31 of the following year. While these are reporting dates, actual payment frequency for federal payroll taxes depends on the S corporation’s total tax liability, which can be monthly or semi-weekly. Most S corporations are mandated to use EFTPS for depositing federal payroll taxes. Failure to meet quarterly payment obligations for either estimated income taxes or payroll taxes can lead to penalties.