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MoneyMath

S-Corp Reasonable Salary Calculator

A defensible salary for S-corp owner-employees — anchored to BLS Occupational Employment Statistics and the 60/40 rule. No RCReports $199 subscription needed.

🟢 Updated April 2026👤 Reviewed by MoneyMath Editorial⚡ Runs in your browser · inputs never leave your device
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Common range is 40–60%. The IRS considers both the ratio AND the market wage for your role.

Suggested Reasonable Salary
$90,000
Audit risk: MEDIUM
Ratio-based salary$90,000
BLS median for profession$110,000
BLS 25th–75th percentile$85,000 – $155,000
Distribution portion$60,000
Show the formula
recommended = max(profit × ratio, BLS 25th percentile)
distribution = profit − recommended
audit risk = LOW if ≥ BLS median, MED if ≥ 25th pct, HIGH below

What "reasonable" actually means per the IRS

The IRS requires S-corp owner-employees to pay themselves a reasonable wage before taking distributions. The test they apply uses two anchors: (1) what other people doing similar work for similar-size businesses earn, and (2) what proportion of your total business income represents services vs. capital. Our default uses BLS Occupational Employment Statistics (OES) — the same federal wage dataset professional audit-defense reports cite.

The audit-risk bands

  • Low risk: Salary ≥ your profession's BLS median wage in your state.
  • Medium risk: Salary between 25th percentile and median. Defensible with documentation (hours worked, services performed).
  • High risk: Below 25th percentile. You'll likely face scrutiny on exam.

What increases audit risk

Large distribution compared to salary (e.g., $30k salary / $200k distribution), industry-wide low salary patterns the IRS is specifically targeting, or a history of year-over-year decreases in salary without business rationale. The IRS S-Corp Compensation page is the canonical source.

Frequently Asked Questions

Is there a safe-harbor percentage?

No. The IRS explicitly rejects any fixed percentage as safe-harbor. Courts have upheld ratios anywhere from 30% to 70% depending on the facts. What matters is whether the salary is "reasonable" relative to what a non-owner doing the same work would be paid.

Do I have to use BLS data specifically?

No, but BLS OES is the most authoritative free source. Professional reports (RCReports, Aon McLagan) also use BLS as their baseline. Custom industry survey data can support higher salaries if you pay a premium-level rate, but require documentation.

What if my state has different minimum wage requirements for owners?

State minimum wage applies to all W-2 employees including S-corp owners. A few states (CA, NY, WA) have separate "executive exemption" rules. Check your state DOL for specifics — this calculator gives federal-level guidance only.

How do I document my salary decision?

Write a one-page memo at year-end: profession, state, hours worked, tasks performed, comparable benchmarks (BLS median + percentile range), and the ratio you chose. Save with your business tax return. This alone dramatically reduces audit exposure.