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S-Corp Reasonable Salary Calculator
Find a salary range you can defend with your CPA and your paper trail. Use it to balance payroll tax and audit risk.
Uses wage benchmarks (when available) and IRS reasonable compensation factors as a starting point.
Optional, but helpful. Used for the 35%–50% rule-of-thumb range.
If provided, we’ll show “below/within/above” for each range.
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Assumptions and limits
- Benchmarks use BLS OEWS wage estimates for select state/role pairs. Some entries may use national percentiles or omit the 75th percentile when a state series does not publish them (see notes in results).
- The IRS considers role, experience, location, hours, and business economics when evaluating reasonable compensation.
- This is an estimate. Your situation may require adjustment and documentation.
- Does not constitute tax or legal advice.
- Assumes an owner-operator S-Corp taking both wages and distributions.
Sources
Questions to ask your CPA
- Given my industry and revenue, what salary range would you defend in an audit?
- How does my current salary compare to wage benchmarks for my role?
- What documentation should I maintain to support my compensation?
- Should I adjust my salary mid-year if revenue is significantly different than projected?
- How does state income tax affect the optimal salary vs. distribution split?
FAQ
What is reasonable compensation for an S-Corp?
Reasonable compensation is the salary an S-Corp must pay its shareholder-employees for services rendered. The IRS expects this to be comparable to what similar businesses pay for similar work.
Why does S-Corp salary matter for taxes?
S-Corp salary is subject to payroll taxes. Distributions generally are not subject to payroll tax. Too low a salary can raise IRS risk; too high can reduce potential payroll-tax savings.
How does the IRS determine reasonable compensation?
The IRS looks at duties and responsibilities, time devoted, comparable salaries in your industry/location, business profitability, and your qualifications and experience.
What happens if my salary is too low?
The IRS can reclassify distributions as wages, assess back payroll taxes, and add penalties and interest.
What’s the penalty for unreasonable compensation?
It can include back payroll taxes on reclassified wages plus penalties and interest. The exact amount depends on facts and timing.
Can I pay myself only distributions?
If you perform services for your S-Corp, you generally must receive reasonable compensation before taking distributions. Zero salary is typically a major red flag.
How often should I review my S-Corp salary?
At least annually. Review sooner if revenue shifts, your role changes, or you add or remove employees.
What’s the sweet spot for S-Corp salary?
Many owners anchor a range using comparable wage data plus business economics. Some use 35–50% of net income as a starting heuristic, but it varies widely by industry and role.
Decision support
Make it defensible
Use the tool output to start the conversation and document your rationale.
- Is the salary range tied to the services I actually perform?
- Do I have at least two anchors (comparables + business economics)?
- Would I be comfortable explaining the rationale in one paragraph?
- Is this reviewed at least annually as profit and role evolve?
- What range would you defend for my role and hours?
- What documentation should we keep in case of IRS questions?
- How does changing salary affect total tax, not just payroll tax?
