The IRS requires S-Corp owner-employees to receive a reasonable salary before taking distributions. Underpaying yourself triggers audit risk; overpaying wastes FICA savings. Find the right range below.
S-Corp Income & Role Details — 2026
How to Determine a Reasonable S-Corp Salary
This S-Corp reasonable salary calculator provides a starting point for determining your owner-employee compensation. The IRS evaluates reasonableness based on all relevant facts and circumstances.
The IRS Factors for Reasonable Compensation
Key factors the IRS considers: comparable wages for similar positions in the same industry, the employee's qualifications, experience, and responsibilities, dividends paid to shareholders versus compensation, the amount and significance of the shareholder's service to the corporation, and the corporation's size and complexity.
Documentation Best Practices
Document your salary decision annually in corporate minutes. Reference BLS Occupational Employment Statistics, industry compensation surveys (like Radford or Mercer), or a written compensation analysis from your CPA. The stronger your documentation, the lower your audit risk.
FAQ
What is a reasonable salary for an S-Corp owner?
The IRS requires S-Corp owner-employees to pay themselves a reasonable salary before taking distributions. Reasonable salary should reflect what you would pay an unrelated employee to perform the same work. Factors include: industry norms, experience, hours worked, responsibilities, and comparable wages in your geographic area. Courts have found salaries of $0-10,000 to be unreasonably low for active owner-operators.
Why does S-Corp salary matter for taxes?
S-Corp distributions (the amount above salary) are not subject to self-employment (FICA) tax. An S-Corp owner taking $200,000 as salary pays 15.3% FICA on all $200,000. The same owner with $100,000 salary and $100,000 distribution pays FICA only on $100,000 — saving roughly $15,300 annually.
What happens if my S-Corp salary is too low?
The IRS can reclassify distributions as wages and assess back FICA taxes, penalties, and interest. In egregious cases, the IRS has succeeded in reclassifying years of distributions. The risk increases with audits. A good rule of thumb: pay yourself at least 40-50% of S-Corp net income as salary in professional service businesses.
Does this calculator guarantee IRS acceptance?
No. This calculator provides guidance only. The IRS evaluates reasonable compensation based on all facts and circumstances. Consult a CPA or tax attorney before establishing your salary structure. For educational purposes only.
Is this calculator free?
Yes, completely free with no signup required. For educational purposes only — consult a tax professional before making S-Corp salary decisions. 2026 tax rates shown.