S-corp Tax Savings for Software Engineer in NY
How to set reasonable S-corp compensation for a Software Engineer in New York. Planning framework, checklist, and official sources.
Updated: 2026-01-15
Running an S corporation can lower self-employment taxes by splitting pay into W-2 salary and distributions, but the IRS expects that salary to be reasonable for the work performed. This guide gives a practical, planning-first framework for a Software Engineer in New York, plus the official sources your CPA will want to see.
Last reviewed: January 15, 2026.
Key takeaways
- The IRS expects shareholder-employees to take reasonable wages before distributions.
- Reasonable compensation is fact-specific: role, hours, revenue drivers, and comparable market pay matter.
State tax snapshot
- New York S corporations pay a fixed dollar minimum tax based on New York receipts. (https://nystax.gov/forms/html-instructions/2024/ct/ct3si-2024.htm)
- The fixed minimum tax ranges from $25 to $4,500. (https://nystax.gov/forms/html-instructions/2024/ct/ct3si-2024.htm)
Role & revenue drivers
Software engineers contribute via product delivery, architecture, and technical leadership. Compensation drivers include scope of responsibility, team leadership, and equity-linked roles.
State + profession context
Independent software engineers mix deep delivery work with architecture decisions, client communication, and support. Revenue can be project-based or retainer-based, which changes how steady compensation should look. New York’s receipts-based fixed minimum tax creates a clear floor even in lighter revenue years. Dense markets and higher staffing costs can shift the reasonable-compensation range upward for owner-operators. Use the OEWS wage range as an anchor, then sanity-check it against local hiring realities and your exact responsibilities. The goal isn’t a perfect number; it’s a defensible narrative your CPA can validate with your file. Documenting time allocation and responsibilities is often the deciding factor in a defensible range.
Compensation benchmark (SOC)
- SOC code: 15-1252 (Software Developers).
- BLS OEWS (May 2024 release) annual median wage in New York: $161,260; 25th–75th percentile range: $119,530–$194,790. (https://data.bls.gov/oes/)
Note: OEWS May 2024 was released on April 2, 2025 (latest available as of January 15, 2026). (https://www.bls.gov/oes/update.htm)
What "reasonable compensation" means
Reasonable compensation is the wage you would pay someone else to do your job under similar conditions. The IRS looks at duties, experience, time spent, and what comparable roles earn, not a fixed percentage of profit. Use multiple data points to defend a range, not a single number.
A clean framework
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Define the role. Capture what you actually do: client/patient load, revenue responsibility, admin oversight, and business development.
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Benchmark a range. Use BLS occupational wage data plus any industry surveys or local comps your CPA trusts. Focus on state-level data where possible.
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Model the split. Pay the reasonable wage as W-2 salary; treat the remaining profit as distributions only after the wage is defensible.
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Document the rationale. Keep your notes, sources, and calculations with the tax file so your CPA can defend the position.
Example scenario
Example: A New York software engineer who leads architecture and mentorship should benchmark against senior-level roles rather than mid-level market data.
Decision checklist
- Did income or services change materially this year?
- Do you have a defensible compensation range for a Software Engineer in New York?
- Is the documentation clear enough to share with your CPA?
- Have you documented how time is split across delivery, management, and growth?
Questions to ask your CPA
- What compensation range is defensible for my role and hours?
- How do New York-specific entity taxes affect the split?
- What documentation would you want if the IRS asked for support?
FAQ
Do I need a separate state S election in New York? Many states require additional registration or elections beyond the federal S election. Confirm the New York requirements with your CPA and the state tax authority.
Should I use national or New York wage data? State or local data is typically more defensible when available. Use BLS data and any reputable industry surveys your CPA prefers.
What documents should I keep? Time allocation notes, comparable wage sources, and written rationale for the salary range are the most common requests.
Related resources
- S-corp Reasonable Compensation Guide
- Year-End Tax Projection
- Estimated Tax Catch-Up
- Tax Optimization
Next step
Use the S-corp Reasonable Compensation Guide to draft your range, then bring it to your CPA for validation.
Compliance note
This guide is for planning and coordination only. It does not provide tax or legal advice. Confirm details with a qualified professional.
