Can an Officer of an S Corporation Collect Unemployment?

An S corporation is a type of corporation with pass-through tax laws allowing the owners to claim the corporation's profits as income. Officers of the corporation receiving paychecks for services are under the same federal rules for taxation as other traditional employees. This may allow S corporation officers to receive unemployment benefits depending on the manner of officer terminations.

S Corporation Officer Pay

An S corporation must consider payments for services made to a corporate officer as wages, according to the Internal Revenue Service. This means the corporation must appropriately withhold payroll taxes from the officer's pay, including federal income tax, state income tax, Medicare and Social Security. The corporation must also require a corporate officer to fill out IRS Form W-4 for the purpose of identifying the officer's appropriate tax withholding rate. The fact that an officer holds shares of the S corporation does not change the company's obligation to treat payments for services as wages.

Unemployment Eligibility

Each state maintains its own criteria for unemployment eligibility, though these rules usually require termination through no fault of the employee. Since an S corporation officer is an employee, as long as the officer meets the state's requirements for unemployment benefits, including earning sufficient wages and time serving at the position, the officer should be able to qualify for unemployment compensation. How much the former officer receives depends on the rate of pay while serving with the S corporation and the total length of service. The S corporation is still free to challenge the officer's right to receive benefits by filing an appeal with the state unemployment compensation department.

Severance Pay Rules

A departing S corporation officer may receive severance pay as a condition of the officer's contract with the company. This pay is a lump sum or scheduled payments designed to provide interim income for the officer during the search for new employment. Some states, including California, do not consider severance pay as income. This means receiving severance pay won't affect the officer's ability to also receive unemployment benefits. Other states, including Pennsylvania, may reduce an officer's unemployment compensation eligibility depending on the size of the officer's severance package.

Voluntarily Leaving Position

Voluntarily leaving a position under no duress does not usually qualify an employee, including an S corporation officer, for unemployment benefits. However, an officer may still qualify for unemployment compensation if the corporation is moving to a different state and the officer does not wish to relocate. An S corporation officer does not have to sell any shares of the company when leaving the position, though if the officer chooses to sell, the act must be done carefully to avoid losing the company's S corporation status. S corporation's cannot legally have more than 100 shares of stock and cannot have other companies as shareholders.

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About the Author

Jonathan Lister has been a writer and content marketer since 2003. His latest book publication, "Bullet, a Demos City Novel" is forthcoming from J Taylor Publishing in June 2014. He holds a Bachelor of Arts in English from Shippensburg University and a Master of Fine Arts in writing and poetics from Naropa University.