Is that still the case? My understanding is that the PPACA ("Health care reform") does away with most of the tax benefits of sub-s's if they are profitable (i.e. would pay dividends) and so now they are mostly useful as passthrough entities during the loss stage.
It would seem to me that if full payroll taxes are paid on Sub-s dividends, that the requirement there would no longer make any real sense.
It's more complicated than that: it's (iirc; there are actual accountants like 'rprasad who have real answers) a specific new medicare tax on S Corp profits, and active S-Corp owner/employees can avoid it. It's not my understanding that the loophole has been closed entirely.
It would seem to me that if full payroll taxes are paid on Sub-s dividends, that the requirement there would no longer make any real sense.