IRS S Corp Stats

By Jason Watson, CPA
Posted Thursday, November 2, 2023

Let’s jump right into some numbers first before going through reasonable S Corp salary theory developed from IRS revenue rules and Tax Court cases. The following table is a summary generated from IRS statistics on S corporation tax returns for the 2017 tax year (we will update next go-around, but this remains stable and relevant for discussion).

Annual Receipts	Gross Receipts Per Return	Net Income Per Return	Officer Comp Per Return	Officer Comp % of Net Income
$25,000 to $99,999	63,669	7,967	9,096	53%
$100,000 to $249,999	170,884	24,796	24,405	50%
$250,000 to $499,999	365,715	43,505	43,917	50%
$500,000 to $999,999	718,867	67,243	68,015	45%
$1M to $2.5M	1,581,150	130,244	106,072	45%

First some quick observations. Officer compensation is added back to net income to determine officer comp as a percentage of net income after expenses (profit). Next, this is all industries from capital intensive manufacturing to personal services business such as attorneys, doctors, consultants, engineers and accountants. More data to follow in a bit.

Also, this includes S Corps who lost money, and whether they lost money and continued to pay a reasonable shareholder salary (Officer Compensation) is unclear. In other words, if losses were teased out would Officer Compensation be reduced as a percentage of net income? We cannot quickly determine from the IRS data.

Here is one more nugget to chew on. As compared to 2013, the Officer Compensation as a percentage of Net Income (far right column) has decreased 2-3% for each Annual Receipts category.

The following tables are from 2013. The IRS has stopped bifurcating gross receipts per return on an industry basis alongside groupings of gross receipts. While this data is seemingly stale, it adds more perspective to the previous table. First one is $100,000 to $249,999 in gross receipts-

$100,000 to $249,999	Gross Receipts Per Return	Net Income Per Return	Officer Comp Per Return	Officer Comp % of Net Income
Finance and Insurance	160,359	34,408	23,213	40%
Real Estate	165,375	38,231	28,193	42%
Professional, Scientific	163,151	32,910	35,404	52%
Health Care	174,383	24,622	36,026	59%

And now for $250,000 to $499,999 in gross receipts-

$250,000 to $499,999	Gross Receipts Per Return	Net Income Per Return	Officer Comp Per Return	Officer Comp % of Net Income
Finance and Insurance	366,533	77,518	62,329	45%
Real Estate	359,163	65,419	51,151	44%
Professional, Scientific	355,693	71,136	74,493	51%
Health Care	378,147	51,553	75,382	59%

The following table is from 2017 data (again, we will update next go-around) but it is aggregated regardless of gross receipts-

Industry	Gross Receipts Per Return	Net Income Per Return	Officer Comp Per Return	Officer Comp % of Net Income
Manufacturing	7,325,298	651,340	166,177	20%
Retail	4,616,094	167,040	60,663	27%
Securities, Finance	1,735,986	525,809	167,658	24%
Professional, Scientific	998,564	142,927	85,487	37%
Holding Companies	2,618,030	1,358,171	114,661	8%
Health Care	Not Reported	149,366	126,903	46%

Some comments-

• Certainly, aggregating all businesses regardless of gross receipts skews the data. As businesses grow, they have an assembled workforce who contribute to the revenue more than the officers (shareholders).

• The IRS had a footnote on Health Care (and other industries) where because of privacy concerns, certain data is not reported. Additionally, Securities, Finance is not the same as Finance and Insurance (close, but not the same).

• Check out Manufacturing and Retail as compared to Professional, Scientific and Health Care. Professional, Scientific and Health Care industries will generally have officers (shareholders) who are more impactful to the overall revenue generation and operations of the business.

• Professional, Scientific has the second lowest average officer compensation, but the second highest as a percentage of net ordinary business income after expenses and deductions. This would suggest this sector is highly fractured with several smaller businesses (all S Corps however).

• Do not read too much into the Officer Compensation Percentage of Net Income figures. These are illustrative only, and do not purport to be a rule or recommendation.

There you go. Remember that Officer Compensation includes all fringe benefits such as self-employed health insurance and HSA contributions, and it might be influenced (increased) by those who want to maximize 401k deferrals, profit sharing plans and defined benefits pensions / cash balance plans. In other words, people with more discretionary cash wanting to defer taxes might increase salaries to do so.