S Corp Salary for CRNAs: How to Determine What's 'Reasonable' in the Eyes of the IRS

One of the biggest tax advantages for 1099 CRNAs operating as an S Corporation is the ability to split income into salary (subject to payroll taxes) and distributions (not subject to self-employment tax).

This setup can save you thousands each year—but there’s a catch: the IRS requires that your salary be “reasonable.” Pay yourself too little, and you risk an audit and back taxes. Pay yourself too much, and you lose the tax benefits of the S Corp.

At CBFC, we help CRNAs strike the perfect balance—ensuring your salary satisfies the IRS while maximizing your take-home pay. Here’s what you need to know.

1. Why “Reasonable Salary” Matters

The IRS uses the reasonable compensation rule to make sure business owners aren’t avoiding payroll taxes entirely by taking all of their income as distributions.

If they determine your salary is unreasonably low, they can:

• Reclassify part of your distributions as wages

• Apply back payroll taxes, penalties, and interest

• Flag you for closer review in the future

2. What Does the IRS Consider “Reasonable”?

The IRS doesn’t give a fixed percentage or dollar amount—it looks at facts and circumstances to decide what’s reasonable for your profession.

Some factors they consider:

• Your training, education, and experience

• The time you spend working in the business

• What similar CRNAs are paid in your area

• The complexity and scope of your work

• The business’s profitability

• Payments to non-owner employees (if any)

3. Starting Point: Market Rates for CRNAs

A good first step is to look at what a W-2 CRNA employee earns in your area for similar work.

• National average CRNA salary (2025 estimates): $200,000–$250,000 annually

• Some regions with high demand or specialized skills can exceed $275,000+

If you work the same hours and provide the same level of service as a full-time W-2 CRNA, your salary should be close to these market rates.

4. Adjusting for Your Actual Workload

Many 1099 CRNAs don’t work a traditional 40-hour week year-round. You may:

• Take extended time off

• Work part-time

• Accept seasonal contracts

In those cases, you can adjust your reasonable salary based on hours worked.
Example:

• Local full-time W-2 CRNA: $240,000/year for 40 hours/week

• You work 30 hours/week for 9 months of the year

• Reasonable salary = $240,000 × (30/40) × (9/12) = $135,000

5. Considering Business Responsibilities

If you spend additional time managing your CRNA business—handling contracts, marketing, or finances—that’s part of your “employee” role and should be reflected in your salary.

If, however, you outsource much of the admin work, your reasonable salary may lean closer to the pure clinical rate for your hours worked.

6. Balancing Salary and Distributions for Tax Savings

The goal of the S Corp is to:

• Pay yourself enough salary to satisfy the IRS

• Take the rest of your profits as distributions to avoid self-employment tax

Example:

• Your CRNA business nets $300,000 after expenses

• Reasonable salary determined: $160,000

• Salary taxed with payroll taxes (Social Security + Medicare)

• Remaining $140,000 taken as distributions—no payroll tax, only income tax

In this scenario, you could save thousands in payroll taxes compared to taking the full $300,000 as salary.

7. Documentation Is Key

If you ever face an IRS inquiry, documentation will be your best defense. Keep:

• Salary surveys or Bureau of Labor Statistics data for CRNAs in your area

• Notes on how you calculated hours worked and your rate

• Contracts or pay stubs from comparable positions

• Records of your time spent on clinical work and business management

At CBFC, we prepare an annual reasonable salary memo for clients that outlines the calculation method and backs it up with data.

8. Common Mistakes CRNAs Make with S Corp Salaries

❌ Setting salary as a fixed low number without research
The IRS can see through arbitrary amounts (e.g., “I just pay myself $50,000”).

❌ Ignoring regional pay differences
CRNAs in rural states vs. major metros can have dramatically different salary norms.

❌ Not adjusting salary when income or workload changes
If your CRNA practice grows significantly, your reasonable salary should be revisited.

❌ Forgetting to run payroll
Paying yourself a salary means setting up payroll, withholding taxes, and filing payroll reports—just transferring money isn’t enough.

9. The CBFC Approach to S Corp Salary Planning

We help CRNAs:

• Research regional CRNA pay data

• Calculate an IRS-compliant salary based on workload and market rates

• Structure payroll and distributions for maximum tax efficiency

• Maintain documentation to withstand IRS scrutiny

• Reassess annually as contracts, income, and hours change

Final Thoughts

The S Corp structure can be a powerful tax-saving tool for 1099 CRNAs—but only if you pay yourself a reasonable salary. Underpay, and you risk an audit. Overpay, and you give up the tax advantages you set out to capture.

With the right calculation, you can stay compliant, save on taxes, and keep more of your income working for you.

Ready to set your S Corp salary the smart way?
Schedule a consultation with CBFC and we’ll help you determine your perfect balance between IRS compliance and maximum savings.