Here’s how the Kohler Payroll Matrix helps you find the right payroll percentage for your S-Corp.
The key variable isn’t just “profit” — it’s draws. How much money you actually take out of the business matters most. So, for simplicity, we’ll call it profit.
Imagine your profit line across the bottom: $0, $50K, $100K, $150K, $200K, and beyond. On the vertical axis, we have payroll as a percentage of that profit — from 0% up to 100%.
Here’s the secret:
As your profit increases, your payroll percentage should go down. You’ll still earn more money overall, but your salary becomes a smaller portion of total profit — optimizing your savings on self-employment tax while staying compliant with IRS “reasonable compensation” rules.
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