How Owner-Operators Pay Themselves a Salary and Distributions with Their S-Corp

For trucking owner-operators structured as single-member LLCs taxed as S-Corps, understanding how to take distributions alongside a W-2 salary is crucial for maximizing tax efficiency and staying compliant with IRS regulations.

Can Owner-Operators Take Distributions?

Yes! However, the IRS requires that S-Corp owners who actively work in the business pay themselves a reasonable salary first before taking distributions.

How It Works

1. Pay Yourself a Reasonable W-2 Salary First

The IRS expects you to take a market-rate salary for your role before taking profits as distributions.

A common benchmark for truckers is $50,000–$80,000 depending on experience, region, and workload.

2. Take Distributions from Remaining Profits

Once a reasonable salary is paid, remaining profits can be taken as distributions (owner draws).

Distributions are not subject to self-employment tax, making them a key tax-saving strategy.

However, they are still subject to regular income tax.

Example of Salary vs. Distributions

Total Business Profit: $120,000

Reasonable Salary (W-2): $60,000

Remaining Profit (Distributions): $60,000

By taking both salary and distributions, you reduce self-employment tax liability while maintaining IRS compliance.

IRS Red Flags to Avoid

Setting a salary too low (e.g., $20K salary with $80K in distributions) may trigger an audit.

The IRS could reclassify distributions as wages, leading to back taxes and penalties.

Payroll & Compliance Requirements

Since an S-Corp owner is considered an employee, they must:

Run payroll through a payroll service or software.

File payroll tax reports (Form 941, W-2s, etc.).

Pay Social Security & Medicare taxes (FICA).

Why This Strategy Works for Truckers

✔ Lower Self-Employment Taxes – Only W-2 wages are subject to payroll taxes, while distributions are not. ✔ Tax-Efficient Income – Distributions reduce taxable income while avoiding FICA taxes. ✔ Retirement Contribution Benefits – Allows higher contributions to Solo 401(k)s or SEP IRAs, reducing taxable income further.

Final Thoughts

Owner-operators structured as S-Corps can legally take distributions in addition to their salary, but it must be done correctly to avoid IRS scrutiny. By balancing a reasonable salary with tax-efficient distributions, trucking professionals can save thousands in taxes while remaining compliant.

Need help structuring your payroll and tax strategy? Contact us today for expert guidance on maximizing tax savings for trucking businesses!