S Corp Payroll Setup for 1-person S Corporation - Explained

S corp payroll overview watch from 0:00

Welcome back to our channel, ClearValue Tax. My name is Brian Kim, I'm a certified public accountant, and in today's video we will be discussing the S Corp payroll setup. So this will not be a video about determining what should your salary be versus your distributions and the tax savings associated with that. That's a separate video. This video will be about the payroll setup for the S Corp. So let's begin by just saying that now that you have an S Corp, you will be an employee of your corporation, so you will be an employee shareholder. So because you're an employee, you need to run a payroll on yourself. Ok, so let's just say

Manual vs automated payroll watch from 0:36

that I highly recommend going with the software to run your payroll functions, because you can do all the payroll paperwork and tax deposits yourself manually on PDFs for doing the payroll, or reporting to all the government agencies, and the tax deposits. However, having a software just simplifies your life so much, and the prices are very reasonable. So if you wanted to do yourself manually, this is what it would entail. Let's just say that, ok, you are an employee on your corporation, your S corp. So then you need to do monthly tax deposits. Well, if you're going to be paying yourself monthly, which you generally would be, you need to do monthly tax deposits for your employee withholdings, so that's a monthly thing that you need to do.

And also you need to fill out the quarterly reports, and you need to be sending those in, the quarterly reports, to the IRS, to your Department of Revenue with the states, to unemployment, so state unemployment reporting. So that's every 3 months you're gonna be filling in PDFs. It's going to be so time-consuming. The softwares, they take care of all this for you automatically, just based off your payroll, what you're running. It just automatically generates those reports, and as simple as just clicking a button, and then your taxes, your tax deposits get paid electronically. So the reports, they also get generated automatically and they get e-filed.

Basically all you need to do is just click Submit, or just have it on autopilot. So this eliminates the need for you to manually be sending in those tax deposits on a monthly basis, and also they were, it just eliminates the need for you to be filling out those PDFs and sending those in to those three agencies on a quarterly basis. So if you want to do that, if you'd be my guests, but I'm telling you, it's just so worth it to choose a payroll provider, you know, a cloud-based payroll service, and have them take care of all those things for you just automatically. So let's just go

State registration requirements watch from 2:54

to the actual setup. So before you go to the actual setup of the payroll, you need to get your registrations done with your state, that's the Department of Revenue. So what do I mean by that? Let's just say, okay, there are some states where there's no state taxes, so you would not be withholding state taxes as the employee nor as the employer. So even if that's the case, you still have the state unemployment tax reporting obligation, payment obligations. So you still need to complete your state registration setup with the Department of Revenue or unemployment or both, so that you can have those account numbers and those tax rates linked up to your payroll software, whichever provider that may be.

Without that, without the registrations with the states, your payroll setup will be incomplete. A lot of times they won't even let you progress. So you need to have this ready. It would be better if you did that beforehand, so that when you're going through the payroll setup process with whichever provider, you can just take care of everything and have it set up fully and completely at that point in time, rather than having to backtrack and just have your registration with your payroll just not finished, of course. So that would be my recommendation: get your state registrations done before the actual payroll setup.

Choosing payroll software watch from 4:23

So once you have that, you need to choose your software. The most popular software out there would be the QuickBooks Online Payroll, the QuickBooks payroll, or Gusto. So that is what I typically see for my S corp clients. So these, you just make, you just need to make sure that you don't choose the very cheapest option that does not allow you to do the payment methods for the tax deposits nor the e-filing methods for the reports, because, I mean, that's one of the, the biggest beauties of having these software providers, because they just take care of those reports and set them off with just a click of a button, just instantaneously.

If you need to print those, you know, sign those, snail mail those in, I mean, that just, that just eliminates so much of the benefits. So just make sure you choose the option where it offers the payments option and the e-filing option, because those are obligations that you need to do along with your payroll. Okay, so when you are

Software configuration watch from 5:28

setting up your software for your payroll, whichever provider that may be, Gusto, QuickBooks, or any other, I mean, they're gonna be pretty much asking you the same questions. You know, they're gonna be asking you what's your salary going to be, and again, please check out my video about how to determine what your salary should be for maximizing your tax savings. They're gonna be asking you what's the frequency of your payroll, so how often do you want to pay yourself. My recommendation, if it's just going to be you as the only employee of your S corp, it's to run a monthly payroll, because you don't want to be going into the software if you do bimonthly or bi-weekly.

I mean, you don't want to be going into the software twice a month to run the payroll on yourself. You might as well just do monthly, so that you can just do a payroll just once a month. You know, it's gonna be half, this is gonna reduce your workload. You know, just, I mean, there's not going to be much work to do, run the payroll on yourself, but again, it's just gonna, it's just going to be doing it once a month versus twice a month. It's gonna be the same thing, there's benefit of running it twice a month or bi-weekly. So that's the frequency, that's my recommendation on the frequency of the pay to yourself.

And then they're gonna be asking you just the basic questions about the employer data, employee and employer bank account, employer address, all that. And they're gonna be asking the employee, the employee data, you know, what's your, you know, what's your bank account, what's your personal address, all that. So when

Payroll best practices watch from 6:56

you run the payroll, it's going to be a shifting of the funds from the employer bank account to your personal bank account, because you are acting as a legitimate employee of the corporation. So you're gonna be no different than any other employee at any other employer. So you're actually gonna be see, well, for best practices, the, the movement of the salary going from your employer business account, your business bank account, to your employee, to your personal bank account. So you're gonna be seen the shifting of the funds, the movement of the funds, as if you are an employee of your own corporation, which you are.

So every, every [payroll provider], whether it's QuickBooks or Gusto or any other payroll provider, third-party Paychex or ADP, they're all gonna be asking you the same questions. So it's just a matter of how much hand holding that you wants, and also about the pricing. So generally Gusto is going to be cheaper than QuickBooks, because QuickBooks is the biggest name-brand out there. And even within QuickBooks, they're gonna be asking you for the lowest version, you know, the mid-tier version, or the most expensive version. I mean, it depends on what point in time that you're watching this video, but generally you're gonna be wanting to select the middle option, that is not the most expensive but it's not the cheapest, because that's gonna give you everything that you need without all the bells and whistles.

So if you want everything just completely done for you, and you just do not want to be involved whatsoever, I mean, some of those people will go to the full service Paychex or ADP, but they're gonna be much more costly. So the good thing about the Gusto or the QuickBooks is that they allow the account, it's sharing access. So if you are working with [an accountant], you know, they can have their own login, and they can look at your accounts to see that it's set up properly, payrolls running properly, the reports are being filed, you know, everything looks good. Okay, how much

Costs and conclusion watch from 8:58

is this software going to cost you? So if you're gonna choose Gusto or QuickBooks, I mean, generally that's gonna be running you about 25 a month to $50 a month, just depending on the service plan. If you choose the more expensive options, you know, other payroll providers, they could be charging you as much as $100 a month, you know, just for you, one employee, for your employee S corp obligations, the payroll, the basic payroll functions and duties. So it just depends on the service plan you wants, but you should be expecting to pay about twenty-five to fifty dollars a month. And again, you know, if you think about it, that's going to eliminate the whole need for you to be manually doing all these things by yourself: the tax deposits to the IRS, to states, unemployment, and filling out those reports and sending those in quarterly, W-2 creation, and all that.

I mean, it's just a huge, you know, time saver, and it's most likely, in most cases, going to be, you know, worth it for you. So I hope all this makes sense, but if you have any questions, please leave them below, please leave them in comments below. We'd be happy to get back to you. And again, if you are looking for more details about a particular topic about the S corp payroll or the S corp salary or just the S Corp in general, then please check out our other videos. I hope you found this helpful. If you [found this helpful], please give me a like, I'd highly appreciate that, and please subscribe, because we're always making great videos that are applicable to you. Take care.