The salary an S corporation owner must take before distributions. The IRS expects it to reflect what the owner's work would command elsewhere.
The IRS reclassifies distributions as wages when an S corporation owner takes little or no salary, adding employment tax, penalties, and interest. There is no fixed percentage; the standard is what a similar business would pay an unrelated person for the same work. Documentation at the time you set the salary is what defends it.
Industry pay data, hours worked, the owner's role and credentials, and what the business paid others. We keep a short memo with the sources used.
Last reviewed September 10, 2026. Tax rules change; confirm current law before acting.
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