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S-Corp Reasonable Salary: How Much Should You Pay Yourself?
The short answer: pay yourself about what you'd have to pay someone else to do your job. The IRS gives no set percentage; it looks at your duties, time, experience and what comparable businesses pay. Use wage data for your role and area, document how you picked the number, and remember: every $10,000 of salary costs about $1,530 in payroll taxes that distributions don't.
What the IRS requires
If you work in your S-corp, you must take reasonable compensation for your services before taking distributions. If you pay yourself too little, the IRS can treat distributions as wages and charge the payroll taxes, plus penalties and interest (IRS: S corporation compensation).
The factors the IRS lists
- Your training and experience
- Your duties and responsibilities
- Time and effort you put into the business
- Dividend (distribution) history
- What you pay employees who aren't owners
- When and how bonuses are paid to key people
- What comparable businesses pay for similar services
- Compensation agreements
- Use of a formula to set pay
Source: IRS: S corporation compensation. Profit that comes from employees, equipment or capital, rather than your own work, can more reasonably be taken as distributions.
How to pick your number
- Look up the pay for your job. The BLS Occupational Employment and Wage Statistics data shows wages by occupation and metro area. Use the role you actually do: a designer, a plumber, a consultant.
- Adjust for your hours. If you work part time in the business, a part-time wage can be reasonable.
- Split roles if you wear several hats. An owner who does the work and also manages others might blend two pay rates.
- Write it down. Keep a short note with the data you used. It's your best defense if the IRS asks.
- Review it every year as the business and your role change.
See what your salary choice saves
Why the lowest salary isn't always best
- Audit risk: a tiny salary next to large distributions is exactly what the IRS looks for.
- Retirement: Solo 401(k) employer contributions are a percentage of your W-2 salary.
- Social Security benefits are based on wages you paid tax on, so a lower salary can mean a smaller benefit later.
- The 20% business income deduction applies to profit after salary, which helps a lower salary, but a separate wage limit can apply at higher incomes.
Common mistakes
- Taking distributions with no salary at all
- Using a fixed percentage of profit from a blog post with no data behind it
- Forgetting to run payroll and pay payroll taxes on time
- Leaving health insurance off your W-2 (owners with more than 2% must include it)
Next: how to pay yourself from an LLC once the salary is set, or go back to the LLC vs. S-corp guide.
FAQ
What is a reasonable salary for an S-corp owner?
About what you'd pay someone else to do your job, based on your duties, hours and experience and what comparable businesses pay. The IRS doesn't set a percentage.
Is 60/40 salary to distributions a rule?
No. Splits like 60/40 are rules of thumb, not IRS guidance. Base your salary on pay data for your role, then take the rest as distributions.
Can an S-corp owner take no salary?
Only if you don't work in the business. If you provide services, the IRS expects reasonable wages before distributions.
Where can I find salary data for my job?
The Bureau of Labor Statistics' Occupational Employment and Wage Statistics shows wages by job and metro area. Industry surveys and job postings can back it up.
Sources: IRS: S corporation compensation · BLS Occupational Employment and Wage Statistics · IRS: self-employment tax · 2026 Social Security wage base. General information for planning, not tax, legal or financial advice.