Evan is the sole shareholder of Magic Roofing Company, a calendar year S corporation. Although Evan spends at least 30 hours per week supervising Magics employees, he has never drawn a salary from Magic. Magic has been in existence for five years and has earned a profit every year. Evan withdraws $50,000 of cash from the S corporation each year.

An IRS agent has just begun examining the last three years of tax returns filed by Evan and Magic. He has questioned whether the $50,000 withdrawals should be characterized as salary payments to Evan instead of shareholder distributions. What are the payroll tax consequences to Evan and Magic if the distributions are characterized as salary payments? Calculate the total potential underpayment of both employee and employer payroll tax that could result from this audit.

What is the payroll tax per year and total potential underpayment?