If you run a Delaware C-corp and you work in it, you are an employee of that company, and the only correct way to pay yourself is a W-2 salary through real payroll. There is no draw. There is no owner distribution that behaves like the one your friend with an LLC takes. Money that leaves the company for you is either wages or a dividend, and a dividend is the expensive answer.
The good news is that the setup is small. A solo founder can have payroll running and health insurance paid for by the company inside of a week, for a few hundred dollars a month in fees, and the C-corp treats the health insurance better than an S-corp would.
The short version
- You must run payroll. A C-corp founder who works in the business cannot take a draw.
- You register for state payroll tax where you physically work, not in Delaware.
- A $120,000 salary costs the company about $129,222 in 2026, before state unemployment insurance.
- The company can pay your health premiums, deduct them, and none of it is taxable income to you.
- With one employee, the usual route to that is an ICHRA or a QSEHRA rather than a group plan.
Why there is no draw
An LLC taxed as a partnership or a sole proprietorship lets an owner move money out as a distribution, and the owner settles up with self-employment tax at year end. A C-corp does not work that way. It is a separate taxpayer, and the two ways it can transfer value to you are compensation for work, which is deductible to the company and taxable to you, and a dividend, which is not deductible to the company and taxable to you again on top of the corporate tax already paid.
That second path is why founders who take money out without payroll end up worse off than they expected. The company pays tax on the profit, then you pay tax on the dividend. On the same dollar. Compensation avoids that because the company deducts it.
The failure mode is rarely a deliberate choice. It is a founder who wires themselves $8,000 a month from the business account for a year, does not run payroll, and finds at tax time that there is no clean way to characterize it. Reclassifying it as wages after the fact means late deposits of withheld tax, and federal deposit penalties scale with how late the deposit is.
What a W-2 salary actually costs the company
Payroll tax has two halves. You pay one out of your salary and the company pays the other on top of it. For 2026 the Social Security rate is 6.2 percent on wages up to a wage base of $184,500, and Medicare is 1.45 percent on every dollar with no cap, each side.
| Annual salary | Withheld from you (FICA) | Company pays (FICA) | FUTA | Total company cost |
|---|---|---|---|---|
| $60,000 | $4,590 | $4,590 | $42 | $64,632 |
| $120,000 | $9,180 | $9,180 | $42 | $129,222 |
| $184,500 | $14,114 | $14,114 | $42 | $198,656 |
| $250,000 | $17,764 | $15,064 | $42 | $265,106 |
Two things to read off that table. The employer cost is a flat 7.65 percent until you cross $184,500, after which only the 1.45 percent Medicare half keeps running, so the marginal cost of a raise drops once you pass the wage base. And at $250,000 the withheld figure is higher than the company figure because the extra 0.9 percent Additional Medicare Tax above $200,000 is employee-only with no employer match.
FUTA is 6 percent on the first $7,000 of wages, reduced to 0.6 percent by the credit for paying state unemployment on time, so it is $42 a year per employee in almost every case. State unemployment insurance is the piece the table cannot fill in for you: rates run from a fraction of a percent to several percent on a state-specific wage base, and a brand new employer is assigned a default rate until it has a claims history.
Income tax withholding sits on top of all this, but it is not a cost to the company. It is your money moving to the IRS earlier than it otherwise would.
Register payroll where you work, not where you incorporated
This is the single most common mistake in the setup, and it is easy to make because the incorporation paperwork is the most recent thing you looked at.
Delaware is where the entity exists. Payroll tax registration follows where the work physically happens. A Delaware C-corp whose only employee sits in Austin registers with the Texas Workforce Commission for unemployment insurance and, in a state with income tax, with that state's revenue department for withholding. It files nothing with Delaware for payroll.
What you do owe Delaware is separate: the annual report and franchise tax, due March 1 for corporations. Most venture-backed startups should compute franchise tax with the assumed par value capital method rather than the authorized shares method, because the authorized shares calculation on a standard 10,000,000-share post-incorporation cap table produces a bill in the tens of thousands of dollars that the other method reduces to a few hundred.
If you move, you register in the new state and deregister in the old one. If you hire someone in another state, you register there too. Payroll providers will handle the filings once registered, but the registrations themselves are usually yours to do.
Health insurance is where the C-corp wins
Under section 106, employer-paid health coverage is deductible to the company and excluded from the employee's gross income. An owner-employee of a C-corp is an employee for this purpose, so the company can pay your premiums, take the deduction, and add nothing to your W-2.
Compare that to an S-corp, where a shareholder owning more than 2 percent has to include premiums in W-2 wages and then claim a self-employed health insurance deduction personally to get most of it back. The S-corp path mostly works out, but it is more steps and the deduction is limited by earned income. The C-corp path is simply cleaner.
With exactly one employee, there are three ways to get there.
| Route | How it works | 2026 limit | Choose it when |
|---|---|---|---|
| ICHRA | The company reimburses your individual-market premiums and qualifying medical expenses tax free | No federal cap, you set the allowance | You want the company to fund a marketplace plan, and you expect to hire |
| QSEHRA | Same reimbursement idea, but capped and restricted to small employers with no group plan | $6,450 self-only, $13,100 family | Your premium fits under the cap and you want the least administration |
| Group plan | The company buys a small-group policy covering you | No cap, priced by the carrier | Your state and a carrier will actually write a one-life group, which many will not |
The catch on a group plan is availability. Most carriers require at least one common-law employee besides the owner, or two enrolled lives, and several states have participation rules that a single-employee company cannot satisfy. It is worth one phone call to a broker, and then usually you move on.
Between the other two, the deciding question is hiring. A QSEHRA is only available while you have no group health plan and fewer than 50 full-time equivalents, and its cap is per employee per year. An ICHRA has no size limit and no federal cap, counts as a group health plan, and lets you set different allowances for different employee classes later. If you expect to be a company of one for another two years, the QSEHRA is less paperwork. If you expect to hire in the next 18 months, start with the ICHRA and skip the migration.
One thing to know before you choose either: if you take an ICHRA allowance that makes coverage affordable by the federal test, you become ineligible for a premium tax credit on the exchange for that year. For a founder paying themselves a real salary that credit was likely out of reach anyway, but check the number before you set the allowance.
The order to do this in
- Pick the state. Confirm where you physically work and, if you have moved recently, which state you were in for the days you worked.
- Register for state withholding and unemployment insurance in that state. Allow one to three weeks for the account numbers to come back, because payroll cannot file without them.
- Pick a payroll provider and connect the bank account. Gusto, Rippling and Justworks all handle a one-person C-corp; the meaningful differences at this size are price and whether you want benefits administration in the same place.
- Set the salary. Write down the number and the runway it implies before you enter it, because changing it mid-year means amended filings if you get it badly wrong.
- Set up the health arrangement. An ICHRA or QSEHRA needs a written plan document, a notice to the employee, and a substantiation process. Providers sell all three as a bundle for roughly $20 to $60 a month.
- Run the first payroll and check the first filing. Confirm the 941 was filed for the quarter and that the state deposit actually cleared. A registration that is not fully activated fails quietly on the first deposit rather than at setup.
- Put the W-2 and the plan documents somewhere you will find them in March.
What the whole thing costs
Payroll software for one employee runs about $40 to $50 a month plus a per-person fee, so call it $600 to $800 a year. An ICHRA or QSEHRA administrator adds $240 to $720 a year. Workers compensation, which most states require even for a single employee and which several payroll providers will place for you, is typically a few hundred dollars a year for office work.
Against that, the employer payroll tax on a $120,000 salary is $9,222, and it is not optional. The administration is the small number here. The salary decision is the large one, and it is a runway decision more than a tax decision.
If you want the payroll, the health arrangement, and the corporate return to agree with each other at year end without you reconciling three systems by hand, that is the kind of thing Median does. We keep the books current and the filings lined up, and we answer what the numbers mean for your runway. You can see the pricing before you talk to anyone.