- The Internal Revenue Service and Social Security Administration are requiring Corporate Owner/Operators to pay themselves compensation if their corporation is profitable.
It seems many small business owners found a method of reducing their tax liability by doing business through their Corporations whose net taxable income is Ordinary Income not Earned Income. Earned Income is subject to Social Security and Medicare taxes for both employer and employee side of the tax. Such tax can be triggered when one is receiving salary or is an independent contractor. Distribution or dividend income to shareholders is not subject to the earned income taxes, but is also NOT Earned Compensation.
More explanation to come shortly.