The Number You Set Is Gross
When your accountant says your reasonable salary is $60,000, that is a gross annual wage, the number that goes on your payroll settings and eventually in Box 1 of your W-2. It is not what lands in your checking account.
From each gross paycheck, payroll withholds federal income tax (per your W-4), your employee share of Social Security (6.2 percent) and Medicare (1.45 percent), and any state income tax. What is left is net pay, the deposit you actually see.
What the Company Pays on Top
The company's cost is bigger than your gross salary. Your S corp pays the employer half of Social Security and Medicare, another 7.65 percent, plus federal and state unemployment tax on the first slice of wages. On a $60,000 salary, budget roughly $4,590 of employer payroll tax on top, so about $64,600 has to be in the business to fund the year of payroll before any distributions.
That employer share is a deductible business expense, which softens it at tax time, but it still has to be in the bank when each payroll runs.
Why the Distinction Matters
Three places this trips up new S corp owners:
Funding payroll. If you set a $5,000 monthly salary, the payroll draft will be more than $5,000 once employer taxes ride along, and the deposit you receive will be less. Keep enough in the business account for the full loaded cost, not the net.
Reasonable compensation. The IRS standard for a reasonable salary is measured in gross wages. Telling yourself you pay $60,000 when $60,000 is your take-home means your actual gross is far higher, and you are overpaying payroll tax relative to the plan.
Comparing salary to distributions. Distributions have no withholding and no payroll tax. A $1,000 distribution arrives as $1,000, while $1,000 of gross salary arrives as several hundred dollars less. They are not interchangeable dollar for dollar, which is exactly why the salary-plus-distributions structure saves money in the first place.
A Clean Mental Model
Gross salary is the tax number: it drives payroll tax, the W-2, and reasonable compensation. Net pay is just the remainder that reaches you today; the withheld part is still your money, prepaid toward your April tax bill.