Do I need to run payroll if I'm the only employee of my S-corp?

The legal basis: IRC §3121(d)(1) defines 'employee' to include 'any officer of a corporation.' Treasury regulations under §31.3121(d)-1(b) clarify that corporate officers who perform services are employees for FICA tax purposes, regardless of whether they own 100% of the stock. There is no 'single-owner exception' to the payroll requirement.

What payroll looks like for a one-person S-corp: you pay yourself a W-2 salary (monthly or quarterly works, as long as it's regular), withhold federal income tax and the employee side of FICA (7.65%), remit the employer side of FICA (7.65%), and file Form 941 quarterly. At year-end, issue a W-2 to yourself and file W-3 with the SSA. A payroll service like Gusto handles all of this for roughly $50 to $100 per month.

Why people skip payroll: they read that S-corp distributions are not subject to SE tax and assume they can take all profit as distributions. The distributions being SE-tax-free is true only after a reasonable salary is paid. Without the salary, the IRS reclassifies distributions as wages and assesses back FICA, plus a failure-to-deposit penalty (up to 15% of the unpaid amount) and interest.

Frequency of salary payments: you can pay yourself monthly, bi-monthly, or quarterly. The salary does not need to be paid every two weeks like a typical employee. Some S-corp owners pay a quarterly salary to simplify filings. Whatever the frequency, it must be consistent and the total must be reasonable for the year.

The estimated tax interaction: as an S-corp owner, you no longer pay self-employment tax directly. Instead, you pay FICA through payroll (employer and employee sides). The remaining profit flows through on the K-1 as ordinary income, subject to income tax. You still need to pay quarterly estimated income tax on the K-1 income if withholding from the W-2 does not cover your liability.