The S-Corp Reasonable Compensation Estimator generates three defensible W-2 salary scenarios for S-Corp owner-employees using the IRS Multi-Class / Many-Hats replacement-cost approach.
How the Estimator Works
Instead of requiring you to input a target salary, the tool generates three compliant salary scenarios automatically:
- Aggressive — Leverages the 70% Watson v. Commissioner floor. Maximizes distributions and FICA savings, but carries higher audit risk.
- Service Standard — Pays 100% of your blended BLS market replacement cost. Highly defensible if challenged.
- Safe Range — Applies the traditional 60/40 rule, floored at your full market value. Heavily suppresses audit risk.
Required Inputs
- Entity Net Business Income — Your profit before owner-employee W-2 salary.
- Business Industry (NAICS) — Selecting your industry pre-fills role suggestions from typical NAICS occupations.
- Geographic Parameters — Your state or metro area, which adjusts BLS wages for local cost of living.
- Role Allocation — Distribute your time across the roles you perform (e.g., core service, administration, executive). Each role maps to a BLS occupation code.
Understanding the Results
Each scenario shows:
- Salary — The W-2 wage amount for that scenario.
- Distributions Pool — The remaining profit available as shareholder distributions.
- FICA Tax Savings — Projected payroll tax savings versus paying the full amount as W-2 wages.
- Salary / Distribution Split — The percentage breakdown for that scenario.
Exporting a PDF Memo
To download a branded compensation memo PDF, you'll need to provide your name and email through the lead capture form. The PDF includes your benchmarks, all three scenarios, and a role allocation summary.
Important Disclaimer
This tool is for educational purposes only and does not constitute financial or tax advice. Reasonable compensation positions should always be reviewed with a licensed CPA or tax attorney before filing. The BLS wage data shown is illustrative and updated periodically — not a live IRS or BLS feed. Verify current occupational wage statistics at bls.gov before relying on any figure.