What to Do If You Haven't Run S-Corp Payroll This Year

If you haven't run S-Corp payroll this year, start with the money you've already taken from the business. A CPA should determine which payments require wage treatment, set reasonable compensation, and decide whether additional wages are still needed. Then process any remaining payroll before your provider's cutoff and correct the related deposits, returns, or wage statements.

You opened the payroll portal and found no owner pay runs for the year. Business checking tells a different story. Transfers to your personal account, month after month, going back to January.

The money moved, and no payroll ran behind it.

Two jobs come out of that, and the first determines the second.

Start with the payment review, not a new transfer. The record of what already left the business determines what still needs to be paid and what needs to be corrected.

At Visor we walk S-Corp owners through missed owner payroll year-round, alongside the payroll provider that processes their wages. It starts the same way every time. The record of what already left the business comes before the pay run.

If nobody raised owner payroll with you this year, that is the gap worth closing alongside the payroll itself. Books, payroll, and the tax return sit with three providers in a lot of businesses, and owner compensation falls between them.

What Did You Receive During the Year?

Start by listing what money left the business and when. Your bank has this. Memory does not.

Do not decide what each payment was yet. That call belongs in the CPA review, and guessing at it now creates work rather than saving it.

Five sources fill that record.

• Transfers from business checking to your personal accounts
• Business-paid personal expenses, and whether you reimbursed them
• Payroll records for every quarter, including quarters with no pay run
• Employment-tax returns filed this year, with the wages reported on each
• Deposit confirmations for federal or state tax already paid

A bank label is not a tax treatment. A transfer you marked "owner draw" or "payroll" does not settle how the payment gets treated. Keep the date, the amount, and your own description, and leave the treatment column empty.

The corporate-officer rule is why this record matters. The IRS guidance on S corporation employees, shareholders and corporate officers treats an officer who performs services for the corporation as an employee of it. Ownership alone does not create wages. Doing the work and getting paid for it is what brings the wage rules in.

The services column is the one people leave blank, and the compensation review runs on it.

Which Payments Require a Compensation Review?

Reasonable compensation is the wage an unrelated person would receive for the services you performed for the corporation. No formula produces it. The facts of your role set it.

The IRS guidance on S corporation compensation and medical insurance issues addresses distributions and other payments to a shareholder-employee being treated as wages when those payments are compensation for services. Reclassification runs on the facts, so it is not permission to relabel this year's transfers without reviewing them.

Evidence is what supports a salary figure, and documenting reasonable compensation covers the role, hours, and comparable-wage material that file holds. This post does not give you a defensible salary. That figure comes out of a documented compensation review against your own facts.

Two transfers of the same size can get different treatment, because the question is what services stood behind each one.

What Can You Still Pay This Year?

After the compensation review covers the payments already made, any additional wages paid before year-end are current-year wages. Your payroll provider may require the run to be submitted earlier. Earlier payments may also require wage treatment, corrected reporting, or late deposits. A new pay run does not resolve those issues by itself.

Running payroll is three obligations rather than one. You pay the wages, you deposit the withheld and employer tax on your assigned schedule, and you file the return reporting both. IRS Publication 15 sets out each duty and the deposit schedules that apply.

Gross wages are not the full cash cost. Employer Social Security, Medicare, and unemployment taxes increase the total. The wages and the taxes may leave business checking on different dates, because federal deposits follow the schedule assigned to your business. The $100,000 below shows the arithmetic. It is an example, not a recommended salary, and the approved figure replaces it.

The employee side comes out of the gross rather than on top. Income tax withholding and your own share of Social Security and Medicare reduce what reaches your personal account. The business needs at least $107,650 to cover the wages and the employer Social Security and Medicare tax, before federal and state unemployment taxes. You receive the gross wages less withholding, and the related deposits leave on the schedule that applies.

Check that figure against what you hold in business checking before you authorize anything. The same reserve applies here as in any owner withdrawal, and the cash you hold back before taking money out sets out how that figure gets built.

Two people hold the decisions. Whoever sets your compensation settles the figure and the treatment of the payments already made. Your payroll provider controls the processing calendar, the deposit mechanics, and the returns it files for you. Get both answers in writing. At Visor the compensation review and the payroll coordination run together, so you are not the one carrying answers between two providers.

What Not to Do About Missed S-Corp Payroll

• Do not backdate payroll. A run you process today does not become an earlier-quarter payment because the date on it says so, and your payroll provider should decline it.
• Do not treat one December run as a fix for the year. It creates wages when they are paid. The earlier payments and filings still get reviewed.
• Do not relabel transfers yourself. A bank memo reading "owner draw" or "payroll" does not set tax treatment.
• Do not pick a salary because it produces the tax result you want. Reasonable compensation comes from the services you performed.
• Do not put your own officer compensation on a 1099. Pay for services you perform as a corporate officer is wage income rather than contractor income.
• Do not wait for filing season to raise it. Deposits, quarterly returns, wage statements, and the S-Corp return run on different dates.

Every one of these makes the correction work longer rather than shorter.

How Late Is Too Late to Fix This?

The answer moves with the calendar, so find your own position first.

Before Your Provider's Cutoff

Contact whoever handles your return and your payroll provider this week. There is room to settle a compensation figure and process current-year wages, and the correction work on earlier months runs alongside it.

After the Cutoff, Before December 31

Do not treat December 31 as your payroll deadline. Your provider needs lead time to set up or review your account, run a cycle, and make the deposit, and a provider's December calendar is shorter than its November calendar. Ask for the last processing date in writing and plan to the date they give you.

After the Year Has Ended

Do not create a new prior-year pay date. Once the year has ended, the work shifts to determining whether payments already made require wage treatment, and to correcting the related deposits, returns, and wage statements. Fourth-quarter returns and wage statements come due after the year ends, so part of this belongs there.

Q4 can still work, with less time to execute than Q3 would have given you.

What Still Needs Correction After Payroll?

Processing any remaining wages in December may close the current-year wage item, but it can leave deposits, returns, and wage reporting open. Four situations come out of the review, and each goes to your preparer as a named issue rather than a form you select.

Publication 15 keeps an adjustment to a filed return separate from a correction to a wage statement. A Form 941 you already filed is corrected on Form 941-X for the affected quarter, and where no Form 941 was filed your preparer determines whether an original return is due rather than filing a correction (IRS Form 941-X instructions).

Group your rows by quarter and send the set to your preparer as one package rather than as separate questions.

The date you pay wages, the date a deposit comes due, and the date a return comes due are set by different rules. Resolving one does not move the other two. Work can remain after December 31, and a correction filed in February is still a correction.

You do not pick the form. What you bring your preparer is a list of which quarters fall into which row.

What Should You Do This Week?

• Export the dated payment record from business checking and any business card.
• Collect the employment-tax returns filed this year and every deposit confirmation.
• Request a documented compensation review from whoever handles your return, with that record attached.
• Get the processing cutoff and deposit dates from your payroll provider in writing.
• Assign an owner and a date to each correction and to payroll for next year.

The request is one message. Send it to whoever handles your return, or bring it to a first conversation if that seat is open right now.

Copy This Email to Your Tax Advisor

Subject line: Owner compensation review

I haven't run owner payroll this year. Attached is a dated record of every payment that left the business for me, with the services I performed in each period.

I am also attaching the employment-tax returns filed this year and the deposit confirmations I could locate. [Name any quarter with no filing.] I need three things before I authorize a payment. A documented reasonable compensation figure for this year. Your decision on how the payments already made should be treated. A list of returns, deposits, and wage statements that need correcting, with the period each belongs to.

My payroll provider is [name]. I will send their processing cutoff and deposit schedule once I have both in writing.

A quarterly tax review is where a completed correction gets checked against what the business does next, and where owner pay stops being something you find in the portal in October.

You decide two things this week. Which action you authorize, and who owns it. Both belong in writing with a name and a date.

A free Visor account gives you a way to see how the pieces fit together before connecting your own information. Owner payroll sits between your books and your tax return, and a year like this one happens when those two run in separate places. Holding them together is what an accounting operating system does. Books. Taxes. The system behind them.

Found owner payments but no payroll record, and no one who flagged it? Owner compensation is work we do year-round, and we can walk you through what to fix first. Talk to our team — Free.

Frequently Asked Questions

What happens if I haven't run S-Corp payroll this year?

Start by reviewing every payment you received from the business against the services you performed. A CPA should determine which payments require wage treatment, whether additional wages are still needed, and which deposits or filings require correction. No single payroll run fixes every version of the problem.

Can I still fix missed reasonable compensation before year-end?

You can process new wages this year if your CPA approves the figure and your payroll provider can still run it. Processing takes lead time, and the deposit and filing dates attached to those wages run past the pay date. Correcting how earlier payments were treated is separate work. December 31 preserves part of the window rather than promising full resolution.

Is there a penalty for an S-Corp that paid no salary to the owner?

There is no single penalty for an S-Corp paying no owner salary. The cost comes from what follows, including late payroll tax deposits, missing or incorrect payroll returns, wrong wage reporting, and the interest and penalties attached to those. IRS Publication 15 sets out the deposit and filing duties. The amount turns on your own facts rather than on a fixed rate.

Can I fix missed S-Corp payroll on my 1120-S?

Not by filing the 1120-S alone. The corporate return reports officer compensation, but payroll taxes, employment-tax returns, and wage statements carry their own filing requirements. Filing the 1120-S does not replace a missing payroll return, correct an incorrect wage statement, or make a missed payroll tax deposit. Each of those stays open until someone handles it.

Unsure which payments need correction? Bring us the payment record and we will tell you what needs correcting and who has to act. Talk to our team — Free.