S-Corp Reasonable Compensation & Tax Savings

Quantify the payroll tax savings of S-corp vs. sole proprietor. Model salary vs. distribution split. IRS reasonable compensation standard. 2026 FICA wage base, Medicare surtax.

IRC 1402 - SE taxIRC 3121 - FICA wagesIRC 3111 - employer FICAIRC 1366 - S-corp passthroughRev. Rul. 74-44

Business & Owner Information

Net Business Income ($)

Total net profit of the business before owner compensation. S-corp: this is the amount to split between salary and distributions.

Proposed Reasonable Salary ($)

W-2 salary paid to shareholder-employee. Must be "reasonable" for services rendered. IRS audits low or zero salaries. Rev. Rul. 74-44.

Other W-2 Income This Year ($)

Other wages subject to FICA. Reduces the owner's exposure to Social Security tax on S-corp salary if already over wage base.

Marginal Income Tax Rate

Federal marginal rate on ordinary income. Used to estimate income tax cost of both salary and distributions (both pass through).

State Income Tax Rate

Combined state + local marginal rate %. Enter 0 for no-income-tax states (TX, FL, NV, etc.).

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