Purpose
An owner's draw lets business owners withdraw money from the business for personal use. It is a distribution from your equity account, not a salary, so it is not a deductible business expense and is not subject to payroll tax withholding or deposits. Owners pay tax on it individually through their annual returns. This article covers setting up the earning and paying it through payroll.
Warning: Whether you should pay yourself by draw depends on your entity type and tax elections. Confirm with your accountant before setting this up.
Who can use an owner's draw:
- Sole proprietorships: yes.
- Partnerships: yes. Your partnership may also use other methods, such as guaranteed payments. Partners are not paid wages as W-2 employees.
- LLCs: depends on whether the LLC is taxed as a corporation or a partnership.
Who can set this up: Any user whose role includes the Payroll permission. This is usually the Employer Admin, but other admin roles can be granted the same access.
Steps: Set up the earning
- Go to Company Earnings and click Add Earning.
- Select Owner's Draw from the Earning Type drop-down list.
- Enter an Earning Name (up to 45 characters). This is what appears on pay stubs and reports.
- Review the remaining settings. For Owner's Draw, most are set by the system:
- Subject to Garnishment Disposable Income: locked by the system. Draw pay is excluded from disposable income. See the behavior table below.
- Subject to Workers' Compensation: defaults to No (owners and partners generally are not covered). Change it to Yes only where draw wages must be included.
- W-2 reporting is handled by the earning type. No W-2 box entry is needed.
- Save.
[Screenshot: Add Earning form with Earning Type "Owner's Draw" selected, showing the locked disposable-income setting; use demo data]
Steps: Pay the draw
- Assign the Owner's Draw earning to the owner on the Earnings tab of their payroll record (see Setting Up Employee Payroll).
- In any regular or special pay run, the earning appears as a column in the earnings grid. Enter the draw amount for the owner.
- Approve the run as usual. The draw is paid by the owner's normal payment method.
How UZIO treats owner's draw payments
| Question | Behavior |
|---|---|
| Taxes | If a person is paid only Owner's Draw in a payroll, no taxes or taxable wages are calculated. If taxable earnings are paid alongside it, taxes are calculated on the taxable earnings only. |
| W-2 | Paid only Owner's Draw all year: no W-2 for that year. Paid taxable earnings too: a W-2 is issued, but draw amounts are excluded from wages. |
| Pension benefits | Although non-taxable, the draw can count toward gross wages for pension benefit calculations. If the owner has a percentage-of-gross pension deduction, include Owner's Draw in that deduction's eligible earnings. |
| Workers' comp | Flagged not subject by default. You can change it to Yes where draw wages must be included. |
| Garnishments | Not included in disposable income. Percentage-of-disposable garnishments will not apply to someone paid only by draw. Flat-dollar garnishments are withheld from draw payments. |
| General Ledger | Map the earning in your GL setup like any other earning, typically to an equity or owner's draw account rather than a wage expense account. Confirm with your bookkeeper. |
Common mistake: Paying an S-Corp owner exclusively through draws. S-Corp shareholder-employees generally must take reasonable W-2 wages. Draws alone invite IRS scrutiny. This is exactly the "ask your accountant" case.
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