IRS Publication 15 — Employer's Tax Guide (Circular E)
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“Officers or shareholders of an S corporation: Distributions and other payments by an S corporation to a corporate officer or shareholder must be treated as wages to the extent the amounts are reasonable compensation for services to the corporation by an employee. See the Instructions for Form 1120-S.”
Noncash wages, including commodity wages, are treated as cash wages if the substance of the transaction is a cash payment. Noncash wages treated as cash wages are subject to social security tax, Medicare tax, and federal income tax withholding. Report the value of noncash wages in box 1 of Form W-2 (box 7 of Form 499R -2/W-2PR) together with cash wages. Noncash wages for farmwork are subject to federal income tax unless a specific exclusion applies. Don’t show noncash wages in box 3 or 5 of Form W-2 (box 20 or 22 of Form 499R -2/W-2PR), unless the substance of the 18 Publication 15 (2026)
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