If you’re an LLC Tier member, you won’t see income tax withholdings as part of your experience since single-member LLC owners don’t pay themselves through payroll. Instead, single-member LLC owners take owner distributions to pay themselves. You can learn more in our article Paying yourself as an LLC owner.
When you’re an S Corp owner, you pay yourself a reasonable wage through payroll. Just like a traditional employee, your paycheck includes income tax withholdings for both federal and state taxes. These withholdings help you stay on track with your personal tax obligations throughout the year and avoid a surprise balance at tax time.
At Collective, for our S Corp Tier members, our goal is to help you understand how payroll settings connect to your overall tax picture. We don’t decide your withholdings for you—but we’ll make sure you know what your options mean and how they fit into your experience as a business owner.
How Withholdings Work
Income tax withholdings cover the taxes on your wages: the reasonable salary you pay yourself through your S Corp payroll. Separately, quarterly estimated tax payments (QTEs) cover the tax on your share of S Corp profit that isn’t part of your paycheck.
Together, these help you spread out your total annual tax across the year instead of paying it all at once. Withholdings are adjusted through your payroll settings, and those elections can usually be updated at any time.
Federal Withholding Options
When you set up or update your payroll, you’ll be asked to complete fields similar to the IRS Form W-4, which determines how much federal income tax is withheld from each paycheck.
These fields determine the rate at which tax is withheld, they don’t affect your actual filing status or change how much tax you ultimately owe for the year.
You can read more about how federal withholdings are calculated in IRS Publication 15-T (Federal Income Tax Withholding Methods).
Most states (and some cities) require a separate state-level withholding form. State elections are typically submitted independently from your federal Form W-4 and determine how much state income tax is withheld from your paycheck.
At Collective, your withholding elections can be managed from your Collective Dashboard. This makes it easy to view, adjust, or update your elections if your situation changes.
Why This Matters
Your reasonable wage is one part of your total S Corp income. Withholdings make sure the tax on that portion is paid evenly through the year. Income tax owed on your remaining S Corp profit is typically paid through quarterly estimated tax payments (QTEs) instead of payroll withholdings.Understanding how these pieces fit together helps you manage cash flow and minimize surprises when you file your return.
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as legal, financial, or tax advice. It is not intended to be a substitute for obtaining legal, accounting, or other financial advice from an appropriate and/or licensed adviser, or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.