If you own an S corporation and you have been moving money from the business account to your personal account all year without running a single paycheck, you have about ten weeks to fix it. S corp payroll in Sag Harbor has a hard deadline, and it is December 31, 2026. Wages have to be paid inside the calendar year they belong to. A January paycheck is 2027 wages, no matter what your notes say.

This is the single most common cleanup we see on East End 1120-S returns. The owner is busy from May through Labor Day, the bookkeeping waits, and the “salary” never happens.

Good news: a December correction is usually cheaper and easier than people expect. Here is what has to happen, what it costs in New York, and when it is not worth doing.

Why December 31 is the real deadline, not March 15

The IRS position is short. S corporations must pay reasonable compensation to a shareholder-employee for services before non-wage distributions may be made, and the Form 1120-S instructions say distributions and other payments to a corporate officer must be treated as wages to the extent they are reasonable compensation for services rendered. The IRS has the authority to reclassify non-wage distributions, which are not subject to employment taxes, as wages, which are.

You cannot fix a 2026 salary with a 2027 paycheck. Everything downstream is built on the calendar year. 2026 Forms W-2 and W-3 are due to the SSA by February 1, 2027, and you must furnish employee copies by the same date. Your fourth-quarter New York return, Form NYS-45, covers October through December and is due January 31, with the next business day allowed when that date falls on a weekend or holiday.

So the work order is: decide the number, run the payroll in December, deposit the taxes, then file.

One limit worth knowing before you pick a number: reasonable compensation will never exceed the amount the shareholder actually received, directly or indirectly. If you only pulled $40,000 out of the company this year, nobody expects a $90,000 W-2.

How to pick the salary number

There is no percentage. The 60/40 split you heard at a job site is not in the code or the regulations. The question is what you would have to pay someone else to do your job, for the hours you actually worked, in this market.

Our position, plainly: if your S corp cleared six figures before paying you and you worked in it full time, a zero or token W-2 will not hold up. If the business cleared $35,000 and you took small draws, a modest salary is defensible and a big one just burns cash.

Write down three things and keep them in the file: a short description of what you do, roughly how many hours a week you do it, and two or three comparable local wage figures for that job. A Sag Harbor marine contractor paying a lead carpenter $38 an hour has a ready-made benchmark sitting in his own payroll records.

What S corp payroll in Sag Harbor actually costs in 2026

Here is a worked example. The numbers are illustrative, not a prediction for your business.

Say a Sag Harbor design-build contractor expects $160,000 of profit before owner pay in 2026, has taken $95,000 in distributions, and has run no payroll. Reasonable compensation is set at $75,000, paid in one December run.

Item	Rate used	Amount
Gross wages (December catch-up)	Example input	$75,000.00
Social Security, employee share	6.2%	$4,650.00
Medicare, employee share	1.45%	$1,087.50
NY Paid Family Leave, employee funded	0.432%	$324.00
Social Security, employer share	6.2%	$4,650.00
Medicare, employer share	1.45%	$1,087.50
FUTA (first $7,000, assumes no credit reduction)	0.6%	$42.00
NY unemployment insurance (first $17,600, new employer rate)	4.1%	$721.60
Total employer cost on top of wages		$6,501.10

The rates behind that table: the 2026 Social Security wage base is $184,500, up from $176,100, and all covered wages stay subject to the 1.45% Medicare tax. Beginning January 1, 2026, employees contribute 0.432% of gross wages per pay period for Paid Family Leave, with a maximum annual contribution of $411.91. New York’s unemployment-taxable wage base for 2026 is $17,600, up from $12,800 for 2025, and the 2026 rate for new employers is 4.1%, including the 0.075% reemployment service fund rate.

Now the part most articles skip. Running that $75,000 in December costs the same Social Security and Medicare as running it in four quarterly chunks. Waiting does not raise the tax. It raises the cash hit in one week, and it raises the odds you miss the year entirely.

And there is a real upside to the December timing. Income tax withheld from wages is deemed paid evenly throughout the year unless you establish the actual dates, so withholding extra at year end is treated as spread across every installment date, which can reduce or wipe out an underpayment penalty. A quarterly estimated payment you send in December gets credit only from December. Withholding on a December paycheck gets credit back to April. If you are behind on 2026 estimates, this is the cleanest fix available to you.

The New York pieces your payroll company may not flag

Three local items matter for Suffolk County owners.

Metropolitan Commuter Transportation Mobility Tax

Sag Harbor sits in Suffolk County, and Zone 2 of the Metropolitan Commuter Transportation District includes Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester. The relief: to be subject to the MCTMT for the quarter, an employer must have payroll expense in the entire MCTD greater than $312,500. A one-owner S corp is nowhere near that. Your December catch-up payroll does not create an MCTMT bill.

Health insurance

If the company pays or reimburses your premiums, that amount has to ride on the December payroll too. For a more-than-2% shareholder, the premium must appear in Box 1 of the W-2 under Notice 2008-1, and missed inclusion means a zero self-employed health insurance deduction. Notice 2008-1 sets the rules under which a 2-percent shareholder-employee gets the section 162(l) deduction for premiums paid or reimbursed by the S corporation and included in income. That one correction is worth real money and it takes five minutes on a payroll run.

PTET

If your S corp elected New York’s pass-through entity tax for 2026, the fourth-quarter 2026 estimated PTET payment is due December 15, 2026. Payments can be scheduled in advance only up to that December 15 date; you may still pay December 16 through December 31, but not schedule it ahead. Your salary decision changes the PTET number, so make the payroll call first, in early December, not on the 14th.

Your December checklist

Pull a profit and loss through November 30 and a list of every owner draw for the year.
Set the salary number and save your support for it.
Confirm the company is registered for federal and New York withholding, and that the payroll account is open and funded.
Add any shareholder health premiums and personal use of a company vehicle to the same run.
Run the payroll with a check date on or before December 31, 2026.
Make the federal deposit on schedule, then the PTET estimate by December 15 if you elected in.
Reclassify the earlier draws in the books so distributions, wages, and loans stop sitting in one account.

When a December catch-up payroll is the wrong move

If the company lost money in 2026 and you took almost nothing out, forcing a salary is not compliance, it is just an expensive gesture. Low or no income usually means low or no required compensation.

If you already max out Social Security at a W-2 job elsewhere, run the numbers before writing a big S corp check. The wage base applies per employer, so your corporation still withholds the employee 6.2% up to $184,500 on its own wages. You get the excess employee share back as a credit on your 1040. The corporation’s matching 6.2% is gone for good.

If the cash truly is not there in December, a smaller supportable salary now beats a large one you cannot fund. Payroll taxes you withhold and do not remit are a far worse problem than a salary on the modest side of reasonable.

And if the business is a single-member LLC that never made an S election, skip all of this. Owner draws are not payroll, and running yourself a W-2 creates a mess rather than fixing one.

Frequently asked questions

I have taken distributions all year. Can I just call part of it salary now?

Yes, in most cases. You run a December payroll for the agreed amount, withhold and deposit the taxes, and reclassify that portion of the draws to wages in the books. It has to be run and dated in 2026.

What is a reasonable salary for a Sag Harbor contractor or shop owner?

There is no set percentage. It is the market wage for the work you personally do, supported by comparable pay for that role, your hours, and the size and profits of the business.

Do I owe the MCTMT on my own S corp wages in Suffolk County?

Almost certainly not. The employer tax applies only when payroll expense across the whole MCTD is greater than $312,500 in a calendar quarter.

When are my W-2 and fourth-quarter returns due?

2026 Forms W-2 and W-3 go to the SSA by February 1, 2027, and the NYS-45 for October through December is due January 31, with the next business day allowed if that falls on a weekend.

Does a December paycheck help with my personal estimated taxes?

Often, yes. Tax withheld at year end is deemed spread evenly across the year, with an equal amount treated as paid on each installment due date.

Talk to MyCleverCPA before the last payroll run

We will look at your 2026 draws, set a compensation figure you can support, size the December payroll so the cash works, and make sure the health premiums and the PTET estimate get handled in the right order. If your books are behind, we will clean those up first.

Call (516) 845-9969 or use our contact page to set up a short call. We are at 30 Lincoln Street in Sag Harbor and we work with owners across the South Fork. See our tax preparation and planning in Sag Harbor.

This article reflects federal and New York State rules as of October 2026. Talk to a tax professional about your situation.

S Corp Owners: Fix Your Payroll and Salary Before December 31