The 2026 S-corp salary question, answered with real numbers

An S-corporation can save an owner thousands in payroll tax — but only if the salary you pay yourself is “reasonable”. Set it too low and the IRS can reclassify distributions; set it too high and the election stops paying for itself.

Why salary matters

As an S-corp owner, you pay 15.3% FICA on wages but not on distributions. On $140,000 of profit, moving from sole-proprietor status to an S-corp with a $70,000 salary saves roughly $9,890 in self-employment tax before extra payroll costs.

What “reasonable” means in practice

The IRS looks at what you would pay someone else to do your job. We benchmark using three sources:

• Bureau of Labor Statistics wage data for your role and metro area
• Your hours and duties — a full-time owner-operator is not a passive investor
• Comparable salaries in your own industry and revenue band

“A salary between 40% and 60% of net profit is a starting point, not a rule. The documentation is what protects you.”

A worked example

Our recommendation

If your business nets less than about $60,000, the election rarely pays off after payroll fees and the extra 1120-S return. Above that, run the numbers with your accountant every year — profit changes, and so should your salary.