Owner Draws vs. Distributions vs. Payroll: How to Pay Yourself in NJ

One of the first questions new business owners ask is how to pay themselves. The answer depends entirely on your entity structure.

Owner Draws (Sole Props & Single-Member LLCs)

You take owner draws — simply transferring money from your business account to personal. There’s no payroll, no withholding. You report all net income on Schedule C regardless of how much you drew. Owner draws are not a deductible business expense.

Distributions (S-Corps & Partnerships)

S-Corp distributions are not subject to self-employment or FICA taxes, which is the core tax benefit. Distributions must be proportionate to ownership.

Payroll (S-Corps)

S-Corp owner-employees must run payroll including federal and NJ income tax withholding, FICA, NJ unemployment, disability, and family leave insurance.

The NJ Angle

NJ requires employer contributions for unemployment, disability, family leave, and workforce development — even on the owner-employee’s salary. These costs should be factored into your S-Corp analysis.

Mixing It Up

Many NJ S-Corp owners use a combination: regular salary via payroll plus quarterly distributions from accumulated profits. The key is getting the salary right first.