All glossary terms
Glossary term
Reasonable Compensation
The amount of salary an S-corp or closely held corporation owner-employee must receive for services rendered.
Related terms
1
Jurisdictions
us
Definition
The IRS requires owner-employees of S corporations and closely held C corporations to receive reasonable compensation for services before taking distributions. Inadequate compensation can result in reclassification of distributions as wages subject to payroll tax.
Examples
- An S-corp owner who only takes distributions and no salary risks reclassification of distributions as wages.
Related terms
Translations
EScompensación razonable
ZH合理薪酬
DEangemessene Vergütung
FRrémunération raisonnable
JA合理的報酬
Citations
26 U.S.C. · 162
Related citations
Computed from the cross-reference graph. Links open the related entity on this site.
This entry cites
- TermS Corporation
- StatuteIRC §162
Cited by
- TermS Corporation
Primary sources
- IRS: S corp compensationVerified 2026-05-20
Important disclaimer
This library is for general tax education only. Always verify filing obligations, due dates, and tax consequences against the cited primary source or with a qualified tax professional.