Reasonable Salary Calculator

Payroll tax applies only to salary, never to the distribution, and has two parts: Social Security at 12.4% on salary up to the wage base ($176,100 here, and nothing above that is taxed further), and Medicare at 2.9% on all salary with no cap.

The qualified business income deduction is 20% of the distribution only (QBI deduction = 20% x distribution). Real W-2 wages you pay yourself do not count as qualified business income, only the pass-through profit does, which is why salary is excluded. This is a simplified version of the real rule. It leaves out:

• The W-2 wage limitation. Above about $191,950 single / $383,900 married filing jointly (2024 figures), the deduction gets capped based on the salary paid. Above that threshold, paying more salary can actually allow a bigger deduction, the opposite of what this model shows.
• Specified-service-trade phase-outs. For businesses like consulting, law, or health, the deduction phases out entirely above those same thresholds.
• The 20% of taxable income cap. The deduction cannot exceed 20% of total taxable income after other deductions, which this model does not check.
• State-specific rules and the additional 0.9% Medicare surtax on high wages are also not modeled.

This is accurate for a simple case: modest income, non-specified-service business, below the phase-out thresholds.