When S Corp Income Drops 98%, the Payroll Plan Has to Change Too

The core advantage of an S Corp is splitting income between a W-2 salary subject to FICA and distributions that are not. WCG targets a salary-to-income ratio of 30 to 50% depending on the profession or industry. In 2025, with net income down to $5,000 but salary running as planned, David’s ratio hit 97 percent. Nearly the entire FICA savings benefit was gone.

For 2026, WCG is rebuilding the payroll plan around a projected $100,000 in net income, with officer salary recalibrated to bring the ratio back in range. Built-in third- and fourth-quarter check-ins will verify actual income is tracking as expected and allow estimated payment adjustments if it is not, which is central to how WCG structures its tax planning services.

To preserve cash flow while the business stabilizes, David is also pausing employee 401(k) deferrals for the remainder of the year, with the option to make a lump contribution at year-end once the income picture is clearer. His HSA, funded at the 2026 family maximum of $8,750 through the S Corp, stays on track. Shareholder health insurance continues through the business as well.