For high-income locum tenens operating through an S corporation, determining a reasonable salary for S-Corp locum tenens (CRNA and Physicians) is one of the most important tax decisions you will make. It affects payroll taxes, distribution strategy, and audit exposure. The IRS says an S corporation must pay reasonable compensation to a shareholder-employee for services performed before making non-wage distributions. 

Many owners know the rule in theory but struggle with the application. The challenge is that the IRS does not give a fixed percentage, fixed ratio, or universal salary table for shareholder-employees. Instead, compensation must be supported by the facts and circumstances of the business.

What Is “Reasonable Compensation” for an S-Corp?

Reasonable compensation is the wage your S corporation pays you as an employee for the services you actually provide. In an S-Corp, owner compensation is usually split into two buckets:

• salary, which is subject to employment taxes  

• distributions, which are generally not subject to employment taxes 

Because distributions receive different tax treatment, the IRS scrutinizes situations where a shareholder-employee performs meaningful services but reports very low wages. The IRS may reclassify non-wage distributions as wages when the facts support that result.

You can review the IRS S corporation compensation guidance here.  

Why This Matters for S-Corp Locum Tenens

CRNAs typically generate most of the S corporation’s revenue through their own clinical services. When gross receipts are primarily tied to the shareholder’s labor, that fact weighs heavily in a reasonable compensation analysis.

Today, many locum CRNAs report gross earnings near or above $500,000 depending on hours worked, market demand, and contract structure. That level of production requires a practical salary analysis grounded in real compensation data. 

How the IRS Evaluates Reasonable Compensation

The IRS applies a facts-and-circumstances standard. There is no statutory percentage rule. 

Common factors include training, experience, duties performed, time devoted to the business, and what comparable businesses pay for similar services. 

For CRNAs, this usually means evaluating clinical production, call responsibilities, administrative duties, and regional compensation benchmarks. The analysis must reflect actual services performed. 

The IRS outlines these factors in Wage Compensation for S Corporation Officers (FS-2008-25).  

Common Salary Mistakes

The most common mistake is setting wages far below the owner’s economic role. For example, a CRNA generating approximately $500,000 in revenue through full-time anesthesia services would have difficulty supporting a very low W-2 salary while taking the majority of income as distributions. 

The opposite mistake also occurs. Some owners set wages so high that little economic profit remains after expenses. That reduces the intended tax efficiency of the S-Corp structure. 

The objective is a supportable wage that reflects market replacement cost and sustainable business economics. 

How to Determine a Reasonable Salary for S-Corp Locum Tenens

A reasonable analysis should begin with market data. The Doximity 2025 Physician Compensation Report provides national compensation benchmarks for anesthesiology. 

Doximity 2025 CRNA Compensation Benchmarks 

Compensation Category	Reported Range (Approximate)
National Employed Average	~$400,000+
Higher-Paying Markets/Top Percentiles	$450,000 – $600,000+

These figures reflect employed compensation, not independent S-Corp profit. Locum CRNAs earning $400,000–$500,000 are typically achieving that through higher hourly rates, extended shifts, travel premiums, and increased production.

This distinction matters. Gross revenue is not automatically equal to a reasonable salary. The business must still cover overhead and generate profit. 

Illustrative Example: Reasonable Salary S-Corp Locum Tenens

Assume a locum CRNA S-Corp reports: 

• Gross revenue: $500,000 
• Business expenses: $75,000 
• Net before owner compensation: $425,000 

In practice, many owners discuss salary in terms of a percentage of gross revenue. A range often mentioned in planning conversations is approximately 33% to 45% of gross receipts. On $500,000 of revenue, that would place wages between $165,000 and $225,000.

However, the IRS has repeatedly emphasized that there is no fixed percentage rule. A defensible salary must instead align with market replacement cost and actual services performed. 

The final number must make economic sense for the business and reflect the owner’s clinical and administrative contributions.  

What Happens If Salary Is Too Low

If the IRS determines that compensation is unreasonably low, it may reclassify distributions as wages. That can result in additional payroll taxes, interest, and penalties. 

Courts have upheld this authority where shareholder-employees provided substantial services but reported wages inconsistent with market compensation. 

Payroll and Filing Requirements 

If you are paying yourself wages through an S-Corp, you need real payroll. In general, that means wage payments processed through payroll, tax withholding, year-end Form W-2 reporting, and quarterly Form 941 filings or annual Form 944 filings if you qualify to use that form. Publication 15 covers current employer payroll requirements, including 2026 wage-base and reporting guidance.  

How to Keep Your Salary Defensible Over Time

A reasonable salary is not something you set once and ignore forever. It should be reviewed when your income changes, your role shifts, or your contracts materially change. If revenue grows because you are personally producing more billable work, the wage may need to move up too. 

This is especially important for CRNAs with multiple facilities, locum contracts, or changing call structures. See our guide on CRNAs working in multiple states for more context. 

How 1099 Accountant Can Help

For CRNAs, locum tenens professionals, and other high-income healthcare contractors, reasonable compensation is not a guess. It should be tied to role, market data, and documentation. A specialist can help structure owner pay so it is both tax-efficient and defensible.

If you are unsure whether your current wage is too low, too high, or poorly documented, schedule a consultation or contact us at (855) 529-1099.