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SESK: Stuff Everyone Should Know · sesk.info/biz-s-corp-reasonable-salary

An S corp owner who works in the business must be paid what before taking distributions?

Reasonable compensation, paid as wages.

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  1. Nothing, distributions alone are fine
  2. Reasonable compensation as wages ✔
  3. Exactly the minimum wage

Why: The IRS says S corporations must pay reasonable compensation to a shareholder-employee before making non-wage distributions. The IRS can reclassify distributions as wages if the salary is too low.

Huh, didn't know that: IRS factors include training, duties, time spent, and what similar businesses pay for similar work.

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References

Answer: Reasonable compensation as wages. The IRS says S corporations must pay reasonable compensation to a shareholder-employee before making non-wage distributions. The IRS can reclassify distributions as wages if the salary is too low.

  1. IRS: S corporation compensation and medical insurance issues www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues
    S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation
    Checked 2026-10-11.

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