S-corp eligibility and reasonable compensation
Eligibility is a hard gate. Reasonable compensation is a documented professional judgment, and no percentage of profit substitutes for it.
Federal S-corp eligibility includes a domestic eligible entity, an eligible shareholder list, a 100-shareholder cap, and one class of stock (voting vs nonvoting can still be one class if distribution and liquidation rights match).
Form 2553 is the election. Timing, late-election relief, and built-in gains are CPA work. Creytix Tax will not file 2553 in Wave 0.
If the election is in force, officer-shareholders who provide services generally need W-2 wages. Distributions are not a substitute for wages.
There is no official IRS percentage of profit that is 'the' reasonable salary. Comparables, duties, hours, geography, and company results belong in a compensation memo a CPA can defend.
The 2026 Social Security OASDI wage base is $184,500 (SSA). Payroll-tax delta math in this product uses that figure and still ignores federal income tax, QBI, additional Medicare, and state tax.
Sources
- S corporations (Internal Revenue Service, retrieved 2026-08-20)
- Form 2553, Election by a Small Business Corporation (Internal Revenue Service, retrieved 2026-08-20)
- Contribution and Benefit Base — 2026 OASDI taxable maximum $184,500 (Social Security Administration, retrieved 2026-08-20)
- Self-employment tax (Social Security and Medicare taxes) (Internal Revenue Service, retrieved 2026-08-20)