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How the IRS defines a reasonable S-Corp salary, what the Tax Court actually weighs, and how to document a number that holds up.
S-Corp Reasonable Compensation: What It Is & How the IRS Defines It
The complete guide — the IRS standard, the factors courts weigh, the leading cases, and how to document a defensible number.
14 articles
S-Corp Reasonable Compensation in 2026
What has changed around S-corp owner pay by 2026: a $184,500 Social Security wage base, a permanent QBI deduction, and an IRS unit built to examine pass-throughs.
Why I Built WageProof
I needed a reasonable salary for my own S-corp. AI's numbers didn't hold up, and I couldn't check the ones in the report I paid almost $500 for.
Is BLS Data Enough for Reasonable Compensation?
Reasonable-compensation reports come in two broad kinds: black boxes, whose data and calculations stay private, and transparent reports built on public BLS data.
Form 1125-E: S-Corp Officer Compensation
What Form 1125-E is, when an S corporation has to file it, what goes in each column, and why the officer pay it reports has to be reasonable.
Year-End S-Corp Reasonable Compensation for CPAs
How CPA firms check and document an S-corp owner's salary before year-end payroll: which clients to review, what a study should show and the payroll steps.
Can AI Calculate S-Corp Reasonable Compensation?
We gave a chatbot with web search a real S-corp reasonable compensation question; it never reached the BLS tables and missed by tens of thousands.
How to Pay Yourself From an S-Corp
S-corp owners get paid two ways: a W-2 salary carrying 15.3% payroll tax, and profit distributions that carry none of it.
S-Corp Distributions: How They Are Taxed
S-corp distributions are not taxed a second time up to your stock basis; at a converted company the AAA ordering sets what the rest is taxed as.
S-Corp Tax Deductions: What You Can Deduct
S-corp tax deductions work differently for owner-employees. What runs through your W-2, what needs an accountable plan, what is never deductible.
Cost vs. Market Approach for Comp Methods
The IRS Job Aid describes three approaches to reasonable compensation. The Cost and Market approaches can differ by about $36,000 on the same owner.
When the IRS Challenges Your S-Corp Salary
How an S-corp salary audit starts, and what back FICA, interest and penalties add up to once the IRS reclassifies distributions as wages.
The 9 IRS Factors (FS-2008-25) & the Job Aid
FS-2008-25 lists nine factors the courts have considered on an S-corp salary. Here is what each one asks for, plus what the IRS Job Aid tells examiners.
QBI Deduction & Your S-Corp Salary Decision
Below the 2026 thresholds your S-corp salary shrinks the QBI deduction, and above them it sets the W-2 wage cap that limits it.
S-Corp Salary 60/40 Rule: Myth vs. IRS Standard
Where the 60/40 salary split came from, why it and its 70/30 and 80/20 variants have no IRS backing, and what an examiner weighs instead.
Reasonable compensation, the salary an S-Corp owner must pay themselves before taking distributions, is an issue the IRS has run special compliance projects on, in 2009 and again in 2020, aimed at S-Corps that pay their owners no salary. When the IRS finds a salary too low, it can reclassify distributions as wages and assess back payroll tax. These guides explain how the IRS defines reasonable compensation, the factors the Tax Court actually weighs, the leading court cases, and how to document a defensible S-Corp salary using Bureau of Labor Statistics (BLS) wage data rather than a rule-of-thumb percentage.
Every S-Corp needs a number they can stand behind.
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