One of the most common questions we hear from S-Corp owners is: “How do I actually pay myself?”

The answer isn’t one-size-fits-all. As an S-Corp owner, you have a few options for pulling money out of the business—and each comes with its own tax treatment and rules.

Let’s walk through the three main ways to take cash out of your S-Corp.

1. Salary (W-2 Wages)

If you’re actively working in your business, the IRS requires you to pay yourself a reasonable compensation. This means:

• You run payroll through the business.

• Taxes (income tax, Social Security, Medicare) are withheld just like any other employee.

• At year-end, you receive a W-2.

Why it matters: The IRS expects you to take a fair wage for the work you perform. Paying yourself only through distributions (and skipping payroll) is one of the fastest ways to get audited.

For more on how ownership changes your tax treatment, see our post on HSA rules for S-Corp owners.

2. Shareholder Distributions

After paying yourself a reasonable salary, additional profits can be distributed to you as the owner. These shareholder distributions are not subject to self-employment tax (like an LLC) or payroll tax.

Example:

• You pay yourself $60,000 in W-2 wages.

• The business has another $40,000 in profit.

• That $40,000 can be distributed to you, and you’ll pay income tax—but no additional payroll taxes—on it. Really, you’ll pay income tax on the businesses net income whether you take the cash or not (this is called a pass through entity)

This combination of wages + distributions is one of the biggest tax advantages of being an S-Corp.

Curious how this compares to other entities? Check out our blog on C-Corp dividends vs. shareholder distributions.

3. Reimbursements for Business Expenses

Another way to move money from your S-Corp to your personal account is through an accountable plan.

Here’s how it works:

• You personally pay for a business expense (like mileage, home office utilities, or supplies).

• The business reimburses you through payroll or a separate payment.

• As long as you follow the IRS rules for documentation, reimbursements are tax-free to you and deductible for the business.

This ensures you’re not personally covering business costs without being repaid.

For IRS details on accountable plans, see IRS Publication 463: Travel, Gift, and Car Expenses.

Final Thoughts

As an S-Corp owner, you can pay yourself through salary, distributions, and reimbursements. The right mix depends on your business income, tax strategy, and compliance with IRS rules.

If you’re unsure whether you’re paying yourself correctly—or want to make sure you’re maximizing your tax savings—schedule a call with our team. We’ll walk you through your options and create a plan that works for you.