How to Run Payroll for a Single-Owner S-Corp

Set up reasonable compensation, calculate payroll taxes, and process payments for your single-owner S-corporation.

1. Set reasonable compensation amount. Determine your annual salary based on what you'd pay someone else to do your job. Research comparable roles in your industry and location using salary surveys or job postings. The IRS requires 'reasonable compensation' — typically 40-60% of net business income for most service businesses.
2. Calculate payroll tax withholdings. Withhold federal income tax based on W-4 elections, Social Security tax at 6.2% on wages up to $168,600 (2025 limit), and Medicare tax at 1.45% on all wages. Add state income tax withholding if your state requires it. You'll also pay matching employer portions of FICA taxes.
3. Process payroll payments. Pay yourself the net amount after withholdings on your chosen schedule — monthly, bi-weekly, or semi-monthly work best for single owners. Use payroll software or a payroll service to automate calculations and generate required forms. Manual processing creates compliance risks.
4. Remit taxes and file returns. Deposit withheld taxes plus employer FICA to the IRS within 1-3 business days depending on your deposit schedule. File Form 941 quarterly and provide yourself a W-2 by January 31. Most states require similar quarterly filings and annual wage reports.
5. Take additional distributions. Distribute remaining S-corp profits beyond your salary as non-payroll distributions. These avoid FICA taxes but still flow through as taxable income on your personal return. Track distributions against your stock basis to avoid creating taxable gain.