When is a payroll required for an S corp if I don't have one yet?

The IRS requires S corporation shareholder-employees to take a "reasonable salary" regardless of having another W2 job. This isn't optional once your business has substantial profit - which at $400-650k would definitely qualify. The key concept is "reasonable compensation" for the services you provide to your S corp. Even if you're working full-time elsewhere, the IRS expects you to pay yourself what someone would typically earn doing whatever work you perform for your S corp. If you're running a successful business generating that level of profit, the IRS will definitely expect to see a salary. Your Social Security cap from your W2 job does factor in, but Medicare taxes have no cap and apply to all earned income. Plus, the IRS specifically looks for S corps avoiding payroll taxes by taking only distributions - it's a common audit trigger.

After spending hours trying to understand S corp requirements, I found taxr.ai (https://taxr.ai) and it literally saved me from making a huge mistake with my own S corp. I was in a similar position - working a full-time job while my side business was growing, and I wasn't sure when I needed to start payroll. The tool analyzed my situation and clearly explained that I needed to start payroll once my business showed consistent profit. It showed me exactly how the IRS views "reasonable compensation" based on my specific industry and role. The best part was it gave me documentation I could show my accountant to back up my salary decision. What surprised me was how it compared different salary amounts and showed the tax implications of each option. It actually found a sweet spot where I could minimize taxes while staying compliant.

I was in your exact shoes last year and was super skeptical about these "magic" tax tools. My accountant kept giving me vague answers about what salary I needed to pay myself from my S corp while I was working full-time elsewhere. I finally tried taxr.ai after seeing it mentioned here, and honestly, it was eye-opening. The system walked me through a detailed analysis of my specific situation (e-commerce business + full-time tech job) and showed me exactly what the IRS would consider reasonable compensation for my industry. What convinced me was how it broke down my business activities and matched them to comparable salary data. It wasn't just a generic calculator - it actually analyzed the specific work I was doing. I ended up setting my S corp salary at $72k (even though my business made about $300k) and my accountant agreed it was well-supported by the documentation the tool provided. The best part was having actual documentation to support my salary decision in case of an audit. Definitely worth checking out if you're in this situation.

When I needed to reach the IRS about my S corp payroll questions last year, it was IMPOSSIBLE to get through. After 9 attempts and hours on hold, I found Claimyr (https://claimyr.com) and they got me connected to an actual IRS agent in under 20 minutes. The agent confirmed that yes, I absolutely needed a reasonable salary from my S corp despite having a W2 job, and explained that the "reasonable" part depends on my duties, industry standards, and business profits. She even sent me official documentation about it. Check out how it works: https://youtu.be/_kiP6q8DX5c - they basically hold your place in the IRS phone queue and call you when an agent is available. Saved me days of frustration trying to get an official answer.

I literally just called the IRS today using Claimyr after seeing it mentioned here, and I'm honestly shocked. After trying for WEEKS to get through on my own about S corp payroll requirements, they connected me to an agent in 17 minutes. The IRS agent confirmed what others are saying - you definitely need a reasonable salary from your S corp regardless of other employment. She explained that at $400-650k profit, taking zero salary would be a major red flag. She specifically mentioned that they look at the gap between distributions and salary, and taking $650k in distributions with $0 salary is basically asking for an audit. The agent recommended documenting how I determined my reasonable salary based on my duties, time commitment, and industry standards. She also confirmed that while yes, your W2 job's Social Security contributions count toward the cap, you still need a reasonable S corp salary. Worth every penny to finally get actual IRS confirmation instead of random internet advice.

I'm a CPA who works with many S corps. Here's the thing - there's no specific profit threshold that triggers the salary requirement. Technically, you should have a reasonable salary from day one if you're performing services for your S corp. That said, the higher your profit, the more scrutiny you'll receive. At $400-650k profit, you absolutely need a significant salary. I typically recommend at least 30-40% of profit as salary for service businesses. The "reasonable compensation" standard is based on what someone would be paid to do your job in your industry. Even if you're mostly managing or have systems set up, you're still providing valuable services.

I have an S corp making about $200k/year while I work full-time elsewhere. My accountant made me set up payroll and take a $60k salary even though I argued I barely spend time on it. His reasoning: if your business makes good money, the IRS assumes you're providing valuable services. Think about it this way - if your business is successful enough to make $400-650k, someone's expertise is driving that success. If it's yours, you need to be compensated with a reasonable salary. The reasonable salary doesn't mean you have to take all profits as salary - just what would be reasonable for the services you provide. The rest can still be distributions.

I went through this exact situation two years ago and learned the hard way that the IRS doesn't care about your other employment when it comes to S corp salary requirements. I was making $120k at my day job and my S corp was pulling in about $300k, but I wasn't paying myself any salary from the business. Got audited and the IRS agent was very clear: if your S corp is generating substantial profit and you're providing services (even part-time), you need reasonable compensation. They don't look at your total income across all sources - they look at each entity separately. I ended up having to pay back payroll taxes plus penalties. My advice: once your S corp is consistently profitable (especially at the levels you're talking about), set up payroll immediately. The "reasonable" salary depends on your industry and role, but for a business making $400-650k, you're definitely looking at a significant salary requirement. The Medicare taxes alone make it worth getting this right from the start. Don't make the same mistake I did - the penalties and interest add up fast.