Paying Yourself as an S Corporation Owner

As an S Corporation owner, one of the perks of this business structure is the ability to pay yourself a salary. Unlike other forms of business ownership, such as sole proprietorships or partnerships, S Corporations provide certain tax advantages and liability protections. However, understanding how to pay yourself appropriately as an S Corporation owner is crucial to comply with tax laws and ensure financial stability. In this article, we will guide you through the process of paying yourself as an S Corporation owner.

Establish Your Salary

Before you can start paying yourself, it’s essential to establish a reasonable salary for the work you perform in the business. The IRS requires that you pay yourself a “reasonable compensation” that aligns with industry standards for similar roles. Determining a reasonable salary often involves considering factors such as your level of experience, the nature of your business, and the geographic location.

Set Up a Payroll System

To pay yourself as an S Corporation owner, it’s crucial to set up a proper payroll system. This system will help you manage your salary payments, tax withholdings, and payroll taxes. Consider using payroll software or consulting with a professional accountant to streamline this process.

File for an Employer Identification Number (EIN)

To establish a payroll system and pay yourself as an S Corporation owner, you need to obtain an Employer Identification Number (EIN) from the IRS. An EIN is a unique identifier for your business entity and is necessary for filing tax returns and other financial transactions.

Determine Salary Frequency

Decide on the frequency of your salary payments. You can choose to pay yourself on a weekly, bi-weekly, or monthly basis, depending on your preferences and the financial health of your business. Consistency is key to maintaining accurate financial records and managing your personal finances effectively.

Withhold and Remit Payroll Taxes

As an employer, you must withhold payroll taxes from your salary payments. These taxes typically include federal income tax, state income tax, Social Security tax, and Medicare tax. Consult with a tax professional or use payroll software to ensure accurate calculations and timely remittance of these taxes to the appropriate authorities.

Document Your Salary Payments

Maintain detailed records of your salary payments. Keep track of each payment, including the payment date, the amount, and any accompanying documentation, such as pay stubs. This documentation will be essential for tax reporting, audits, and financial analysis.

Consider Additional Compensation Methods

Apart from a regular salary, you may be eligible to receive additional forms of compensation as an S Corporation owner. This could include shareholder distributions or bonuses, which are subject to different tax treatment than regular salary payments. Consult with a tax professional to understand the implications and benefits of these alternative compensation methods.

Consult with a Tax Advisor

Navigating the intricacies of paying yourself as an S Corporation owner can be complex, especially when it comes to tax compliance. To ensure you’re adhering to all legal requirements and maximizing your financial advantages, it’s highly recommended to consult with a qualified tax advisor or accountant. They can provide personalized guidance based on your specific circumstances and help you optimize your salary structure.


As an S Corporation owner, paying yourself a salary is an important aspect of managing your business and personal finances. By establishing a reasonable salary, setting up a payroll system, withholding payroll taxes, and documenting your payments, you can ensure compliance with tax regulations and maintain a healthy financial foundation. Remember to seek professional advice to tailor the process to your unique situation. With careful consideration and proper guidance, you can pay yourself as an S Corporation owner in a way that aligns with both legal requirements and your financial goals.

Video Transcript

If You Own an S Corporation, How Does It Pay You?

An S corporation can pay you in two ways. First, if it doesn’t have enough money to pay you, you don’t get paid because you are the owner. But if it has enough money to pay you, first, it needs to pay you wages, and you are going to pay payroll tax on that and also income tax on that. And those wages need to be a reasonable wage. Fair market value is what the IRS says for the services that you are providing as an employee in the company.

But let’s say the business generates a lot more profits than what it is paying you as an employee. Then, your S corporation can pay you a profit distribution or dividend. Essentially, you are going to get those profits paid to you free of payroll tax. You will still have to pay income tax for state and federal, and that is considered ordinary income. It is not capital gains, but at least in an S corporation, you can avoid payroll tax on the portion of profits you get beyond your wage amount.

You Might Say to Yourself, Can I Pay Myself a Dollar in Wages? That Way, the Rest of It Comes Free of Payroll Tax

Unfortunately, no. The IRS says you have to pay yourself a reasonable fair market wage for the job that you are doing, so you can hop on Indeed and see what is the going rate for something like this. So in an S corp, how do you pay yourself? Well, assuming there is money, first, you will pay yourself in wages, and then you may write yourself a check for profit distributions. And you don’t have to do that every week, every two weeks, or every month. You can just do it from time to time as the financials permit.


All right. That does it for today. I would love to know if you find this helpful. And by the way, if you have other questions, feel free to add them in the comment section below. We will grab those and use those for future live sessions. You can also submit questions by email or using the form in the description below.

I am Aaron Hall, an attorney for business owners and entrepreneurial companies. This has been an educational broadcast. As always, all these issues I encourage you to use as topics to discuss with your attorney, not as a replacement for an attorney. This is educational information to empower you to avoid problems, establish a great company and hopefully have a better life You can find more about me at