S Corporations Can Face Two Different Marginal Tax Rates – 2014
Top Marginal Income Tax Rate for Sole Corporations, Active Shareholders, 2014
Note: Marginal tax rates include federal, state and local income taxes, payroll taxes, the deduction for state and local income taxes, and the effect of the Pease limitation on itemized deductions. Published Jan 20, 2015.
The fastest growing type of pass-through business is the S corporation.
An active shareholder of an S-Corporation participates in the day-to-day activity of the business while a passive shareholder does not.
Active shareholders generally receive two types of income from their S-corporations: wage income and a profit distribution. The wage income is subject to the payroll tax, which is 15.3 percent on the first $117,000, 2.9 percent on the next $83,000 and 3.8 percent on all income over $200,000. The profit distribution is not subject to the payroll tax. So if an owner receives $200,000 and half of it is wage income, they need to pay $15,300 in payroll taxes (15.3 percent of $100,000), the rest is exempt from the payroll tax.
The map shows the top marginal tax rate in each state for an active shareholder, assuming that their last dollar earned was a profit.