CEO Compensation Guide for WA C-Corps

Structuring Your Compensation Package

As a C-Corp CEO in Washington, you can pay yourself through a mix of salary and benefits. This interactive guide explains the primary methods for structuring your compensation in a way that is both tax-efficient and compliant. The key is to find the right balance that meets your personal financial goals and the company's budget.

Hypothetical Compensation Mix

➔ Base Salary

The foundation of your compensation. It must be "reasonable" in the eyes of the IRS. This is considered an expense for the corporation.

➔ Health & Retirement

Tax-advantaged benefits like HSAs and 401(k) plans. These are powerful tools for building wealth and are deductible expenses for the company.

➔ Dividends

Payments from company profits. Unlike salary, they are not a deductible business expense and are subject to double taxation.

Setting a Reasonable Salary

The IRS requires that compensation paid to a CEO who is also a shareholder must be "reasonable" for the services performed. An unreasonably high salary could be reclassified as a non-deductible dividend. Use the checklist below to understand the process for establishing and documenting your salary.

Process for Establishing Salary:

1 Research Comparable Salaries

Document what similar positions in your industry and geographic location (Washington State) are paid. Use data from salary websites, industry surveys, or a compensation consultant.
2 Define CEO Duties & Responsibilities

Create a formal job description that outlines your qualifications, the complexity of your duties, hours worked, and overall value to the corporation.
3 Assess Company's Financial Performance

The company's ability to pay is a key factor. Your salary should be justifiable based on the corporation's gross and net income.
4 Hold a Board of Directors Meeting

Formally approve the salary package. Even if you are the sole board member, this is a critical step for corporate formality.
5 Document in Corporate Minutes

The board resolution, including the salary amount and the justification (referencing the research), must be recorded in the official corporate minutes. This is your primary defense in an audit.

Health Savings Accounts (HSA)

An HSA is a tax-advantaged savings account used for healthcare expenses, available to individuals with a High-Deductible Health Plan (HDHP). A C-Corp can make contributions to the CEO's HSA, which are tax-deductible for the business and not counted as taxable income for the CEO.

How It Works:

Establish an HDHP: The CEO must be enrolled in a qualified High-Deductible Health Plan. This can be a group plan offered by the corporation or an individual plan.
Open an HSA Account: The CEO opens an HSA account at a bank or financial institution that offers them.
Corporation Contributes: The C-Corp makes direct contributions to the CEO's HSA. This is typically done through payroll as an employer contribution.
Document Formally: The company's HSA contribution plan should be documented in an employee benefits plan or a board resolution.

Projected 2025 Max Contributions

(Employer + Employee)

$4,300

Self-Only

$8,550

Family

Individuals age 55+ can contribute an additional $1,000 catch-up.

Retirement Plans (401k)

A C-Corp can establish a 401(k) plan to provide retirement benefits for the CEO. Contributions made by the corporation are a tax-deductible business expense. For a company where the CEO is the only (or one of very few) employees, a Solo 401(k) is often the best choice due to its high contribution limits and administrative ease.

Plan Comparison

Feature	Solo 401(k)	Traditional 401(k)
Best For	Owner-only businesses (or with spouse)	Companies with non-owner employees
Contribution Roles	CEO acts as both "employee" and "employer", making contributions in both roles.	Employee makes contributions; employer may match or provide profit sharing.
2025 Max (projected)	$23,000 (employee) + 25% of compensation (employer), up to $69,000 total.	$23,000 (employee) + employer contributions, up to $69,000 total.
Administration	Simpler, less paperwork, no complex discrimination testing.	More complex, requires annual testing to ensure fairness to all employees.
Loan Option	Yes, can borrow up to 50% or $50,000.	Yes, subject to plan rules.

Key Considerations & Compliance

Maintaining corporate formalities and understanding tax obligations is crucial. These points are essential for any C-Corp in Washington when structuring CEO compensation. This is not exhaustive legal or tax advice.

All compensation decisions—salary, bonuses, benefit plan adoption—must be approved by the Board of Directors and meticulously documented in the corporate minutes. This creates a paper trail that justifies the decisions as legitimate business expenses.

Salary paid to the CEO is subject to payroll taxes (Social Security, Medicare). The corporation is responsible for withholding these taxes, as well as federal income tax, and remitting them to the IRS. The corporation also pays its own share of these taxes. Use a payroll service to ensure compliance.

No State Income Tax: Washington does not have a personal or corporate state income tax.
B&O Tax: The corporation's gross receipts are subject to the Business & Occupancy (B&O) tax. Your salary and benefits are business expenses that reduce net profit, but they do not reduce B&O tax liability.
Paid Family and Medical Leave (PFML): Premiums for WA PFML must be paid on employee wages.

This guide is for informational purposes only. It is highly recommended to consult with a qualified CPA for tax planning and a corporate attorney to ensure all actions are compliant and properly documented.