Overview
As a shareholder of an S Corporation, you might be unsure if you should pay quarterly tax estimates. This article answers common questions pertaining to quarterly tax estimates for S Corporations, including the difference between payroll and income tax obligations.
Do S Corporations pay quarterly tax estimates?
Yes, as a shareholder of your S Corporation, you still owe quarterly tax estimates if your annual tax liability exceeds $1,000.
This is common with S Corp because only a portion of your practice’s profits are paid as W-2 wages. The rest of your profits are generally taken as owner’s distributions, which aren’t taxed. Remember that the business's profit is reduced by the W-2 salaries paid and any payroll and payroll taxes incurred. Therefore, you only pay quarterly taxes on the remaining net profits after all business expenses, including wages, are accounted for.
Please note: In some states, the S-corporation could also be subject to a franchise tax, which is separate from personal quarterly tax estimates.
Employer's Quarterly Payroll Taxes Form 941 vs Quarterly Tax Estimates ES-1040
- Payroll taxes, FICA (Medicare and Social Security) are taxes paid on W-2 wages or salaries that employees earn and are paid by both employers and employees. In addition to withholding and depositing payroll taxes, employers must file Employer’s Quarterly Payroll Taxes (FICA), Form 941, every quarter. If you use Heard Payroll or Gusto, Form 941 will be filed by your payroll provider, as these are handled by the S Corporation.
- Quarterly Tax Estimates, Form ES-1040, are typically calculated using the safe harbor method, which takes your prior year's tax liability and the amount of taxes you owed last year based on last year’s income and adds it to your total income for the current tax year.
By completing the Quarterly Tax Checklist on your Heard account each quarter, we utilize your income to help determine how much you owe in estimated tax each quarter. The quarterly estimated tax is paid toward your tax bill in quarterly installments towards federal and state taxes.
Can I skip paying quarterly tax estimates if I am filing quarterly payroll tax filings?
If your private practice is an S Corporation and you pay yourself with a salary as a W2, you are already filing quarterly payroll tax filings. However, this does not mean you should skip paying your personal quarterly tax estimates. Underpaying or skipping paying the estimated tax can result in the IRS assessing an underpayment penalty, and interest is also applied based on each quarter in which underpayment occurred.
The payroll taxes you’re remitting to the IRS when your S Corporations files its quarterly tax form are just for the taxes withheld on your reasonable salary and the wages paid to any other employees of the business. These are separate from the taxes you owe personally for other income drawn from your business, such as owner distributions.
Are there business quarterly taxes for S Corporations?
Some states require separate franchise or excise taxes for businesses, and those are actual business taxes, but they aren’t included in the Heard service. All estimates you receive from Heard during the Quarterly Tax period are for your personal income tax liability.
Do I owe Franchise or Excise Taxes for my practice?
This varies from state to state and, in some cases, can vary by country or city. Heard doesn't include franchise or excise taxes you may owe in our quarterly tax estimates. Be sure to familiarize yourself with your obligations as a business owner, and reach out to our team if you have any questions.
Should I pay quarterly tax estimates from a personal or business account?
- Quarterly tax estimates are a personal expense and should be paid from a personal bank account.
- Franchise or excise taxes are a business expense and should be paid from a business bank account.