Software developer

What is reasonable compensation for a software developer?

A software developer who owns their business through an S corporation, whether building a product or delivering client development work, owes themselves a wage for the engineering labor they personally perform, writing and reviewing code, architecting systems, and managing technical delivery, separate from whatever the business earns in profit. Reasonable compensation is that labor wage, and a Reasonable Compensation Study documents it using the IRS factors as they apply to a technical, project-driven business.

Training and experience carry significant weight, since years of hands-on development experience and depth in specific languages or systems are what the market actually pays for. Duties devoted to the business matter too: an owner who is personally writing production code, reviewing pull requests, and architecting the systems a product depends on is doing markedly different work than one who has hired a development team and shifted into product direction, client management, and business operations.

Time and effort in a development business is not always evenly billable the way client-services hours are, since architecture decisions, debugging, and technical planning often happen outside any single invoiced engagement. A Study looks at the owner's actual working pattern across coding, review, and planning, and weighs that against what comparable technical businesses pay for similar engineering labor, since seniority and specialization change that comparison a great deal.

What the business pays developers, engineers, and technical staff, compared with what the owner takes as distributions, is central to the analysis. The typical structure for an owner-led development business, sometimes a solo builder and sometimes a small team the owner leads technically, shapes how a Reviewer at the firm evaluates whether the owner's documented engineering duties and hours support the wage claimed against what the market pays for comparable technical work.

National wage band: software developer

Annual wages for employed software developers in the United States, by percentile.
PercentileAnnual wage
10th percentile$82,460
25th percentile$105,210
Median$135,980
75th percentile$171,980
90th percentile$214,670

BLS OEWS · May 2025National wages for employed people in this occupation by percentile, from the BLS OEWS May 2025 release. An owner's reasonable compensation is derived through the IRS factors, not read off the median.

Start with your own numbers

The table above is the market view of what employed software developers earn. The calculator starts from your role, your state and your hours, and shows how a Study would frame the question for your S corporation.

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Questions software developers ask about reasonable compensation

What is reasonable compensation for a software developer who owns their own business?
It is the wage a comparable, experienced developer would need to be paid to do the coding, architecture, and technical delivery work the owner personally performs, kept separate from the profit the business earns overall. A Reasonable Compensation Study documents the owner's technical experience, the systems and languages they work in, and how much production work they do directly versus through a hired team, then compares that against market pay for similar engineering labor.
Does building a product versus doing client work change a developer owner's salary?
The business model shapes what the owner's actual duties look like, since a product-focused owner may spend more time on architecture and long-term technical decisions while a client-services owner may spend more time on delivery across multiple engagements. A Study looks at the owner's real duties within their specific business model rather than assuming one generic development role, so the resulting comparable wage reflects how the owner's time is actually spent.
How does specialization in a language or platform affect reasonable compensation?
Depth in a particular language, framework, or technical domain shifts the comparable role a Study measures the owner against, since specialized technical skill commands different market pay than general development work. An owner with deep experience in a niche technical area that is hard to hire for is being compared against a different wage than a generalist, and the factors reflect that specialization directly in how the comparable pay is determined.
How does hiring other developers change what an owner should be paid?
Once a business brings on other developers or engineers, the owner's role often shifts toward architecture decisions, code review, and technical leadership rather than writing every feature personally, which changes the comparable role a Study measures against. What the business pays those developers sets a market reference point, and the owner's compensation needs to account for both any hands-on coding they still do and the responsibility of leading the technical team.
Does time spent on infrastructure and maintenance count toward an owner's reasonable salary?
Yes, since time and effort covers all the labor that keeps the business running, not only the visible feature work a client or end user sees. Maintaining infrastructure, patching dependencies, and keeping systems reliable is real technical labor an owner performs even when it never appears on a project timeline. A Study accounts for that ongoing maintenance work alongside new development, since a business would otherwise have to pay someone else to keep those systems running.

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