How to pay yourself from an S corp

Why this is a win

As a sole proprietor or single-member LLC taxed the default way, your net earnings carry self-employment tax: 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare.² As an S corp owner who works in the business, you’re an employee of your company.³ Your salary carries the usual payroll taxes, and the profit you take as distributions on top of that salary doesn’t carry employment taxes.¹

That’s the tax code working as designed for small business owners. The one thing it asks in return is a salary that fits the work you do.

Setting a reasonable salary

There’s no single number in the tax code.³ The IRS lists the factors it looks at, and they make a practical checklist:¹

• What the market pays for the role. What comparable businesses pay for similar services. The Bureau of Labor Statistics publishes wage estimates for about 830 occupations, by state and metro area.⁴
• Your time and effort. Full time or part time, and how your hours split across roles. An owner who spends half the week doing the work and half managing might blend two market rates.
• Your training, experience and duties. The more of the business’s results come from your personal services, the more of the profit belongs in salary.¹
• What you pay others. Payments to non-shareholder employees doing similar work are a useful yardstick.¹
• Write down your reasoning. A short memo with the roles, hours and market data you used makes next year easy and keeps your CPA in the loop.

Want a starting range before that conversation? Our S-corp salary calculator turns your role, hours and state into a salary range from BLS wage data and shows the payroll tax you keep. Gusto’s Solo plan also includes a reasonable salary calculator, which is another handy starting point for that conversation with your CPA.⁵ For state-by-state pay in 15 professions, see S-corp reasonable salary by profession.

Set up owner payroll in Gusto, step by step

1. Confirm your S corp election. Your company elects S corp status with Form 2553. Gusto Solo includes a guided Form 2553 if you haven’t filed yet.⁶⁵
2. Pick your salary with your CPA using the factors above.
3. Open Gusto through our referral link and, when Gusto asks who you pay, choose yourself as a W-2 employee.⁷
4. Add company and federal tax info: legal name and FEIN as the IRS has them, Form 941 or 944, and your deposit schedule.⁷
5. Connect the business bank account and choose a pay schedule. Monthly or twice a month keeps things simple for a one-person payroll.
6. Add yourself to payroll. Create your own employee profile with your salary, W-4 and state details.⁷
7. Sign Form 8655 and run your first payroll. Gusto files the quarterly 941s and your W-2.⁵
8. Take distributions separately. Distributions don’t run through payroll. They’re a transfer from the business account to you, recorded in your books. Your CPA can suggest a rhythm, like quarterly.

Which Gusto plan fits

If you’re the only person on payroll, Gusto Solo is built for you: $49 a month plus $6 per person paid, and Gusto says most owners pay $55 a month.⁵ Adding employees later? Gusto’s other plans cover teams.⁸ More detail in our S-corp owner payroll guide.

Timing heads-up

Starting owner payroll in January keeps the year tidy: one payroll provider, one W-2, and a salary that runs all year. The Switch Planner handles owner-only payroll too. Already paying yourself through another provider? See switch payroll before January 1.

Every business is a little different, so check with your CPA for your situation. Good CPAs love a clean switch, and they’re on your team.

Your next step

Two moves, in this order. First, let the free Switch Planner turn your team, states and paydays into a dated plan. Then open Gusto when you’re ready. You won’t be doing it alone, and we’ll help you get every step right.

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