Reasonable Compensation Reports

What is included in the Reasonable Compensation Figure?

Reasonable Compensation figures include taxable Medicare wages and flexible spending accounts. Reasonable Compensation figures do not include non-taxable fringe benefits such as health insurance, vehicle or vehicle allowance, stock options, company loans and other items not reported on a W-2 as Medicare wages.

​What if an S Corp Owner can’t pay Reasonable Compensation?

This is by far the number one question we receive, and the answer is both simple and complex. Why? Because the amount of Reasonable Compensation actually paid is tied to distributions, not profit or loss.
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Depending on the company’s financial condition and business strategy, a shareholder-employee may be able to take Reasonable Compensation plus a distribution, just Reasonable Compensation, or neither. What the shareholder-employee can’t do is take a distribution instead of Reasonable Compensation.
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