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 setup is small: a state registration or two, a payroll provider, and a health arrangement. For a company of one, a federal rule about plans with fewer than two employees changes which health setup you need.
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.
- Employer-paid health coverage is excluded from an employee's income, and the law doesn't carve out a C-corp owner the way it does an S-corp owner.
- While you're the only employee covered, a reimbursement arrangement sits outside the ACA market-reform rules.
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 on net earnings. A C-corp does not work that way. It is a separate taxpayer, paying 21 percent federal tax on its own taxable income (IRC 11). The usual ways it moves value to you are compensation for work, which the company can deduct as "a reasonable allowance for salaries" (IRC 162(a)(1)) and which is taxable to you, and a dividend, which comes out of profit the company has already paid tax on and is taxable to you again.
That second path is why taking money out without payroll costs more than it looks. 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.
Picture a founder who wires themselves a round number every month from the business account for a year, never runs payroll, and reaches tax time with no clean way to characterize the transfers. If they are treated as wages, the tax that should have been withheld and deposited on each payday was never deposited. The federal failure-to-deposit penalty is 2 percent of the late amount at up to 5 days late, 5 percent at 6 to 15 days, and 10 percent after that (IRC 6656), so a year of missed deposits sits in the top band.
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. Social Security is 6.2 percent each side and Medicare is 1.45 percent each side on every dollar with no cap (IRC 3101, 3111). For 2026 the Social Security part stops at a wage base of $184,500 (IRS Topic 751).
| 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 | $15,514 | $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 employer must withhold the extra 0.9 percent Additional Medicare Tax on wages above $200,000, which is employee-only with no employer match (IRC 3101(b)(2)). On $250,000 that's $450.
FUTA is 6 percent on the first $7,000 of wages, reduced to 0.6 percent by the maximum 5.4 percent credit for state unemployment tax (IRS Topic 759), so it is $42 a year per employee when the full credit applies. An employer in a credit reduction state gets a smaller credit and pays more. State unemployment insurance is the piece the table cannot fill in for you, because each state sets its own rates and wage base.
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
It's an easy slip, because the incorporation paperwork is the most recent thing you looked at. Delaware is where the entity exists. State withholding, unemployment insurance and new-hire reporting follow where the work is done. New York, for example, requires withholding on nonresidents paid for services performed in the state (NY Tax Department), and federal law sends new-hire reports to the directory of the state in which a newly hired employee works, within 20 days of hire (42 U.S.C. 653a). So a Delaware C-corp whose only employee sits in Austin registers for unemployment insurance in Texas, not Delaware, and a founder working from New York registers for New York withholding too.
What you do owe Delaware is separate: the annual franchise tax report, due by March 1, with a $200 charge added if it's late, plus the franchise tax itself (8 Del. C. ch. 5). Delaware computes the tax two ways and you pay the lesser (8 Del. C. § 503(a)). On 10,000,000 authorized shares, the authorized shares method comes to $85,165 at the Division of Corporations' published rates. The assumed par value capital method has a $400 minimum (Delaware Division of Corporations). Run both before you pay.
If you move, you register in the new state and close the account in the old one. If you hire someone in another state, you register there too. Once the registrations exist, a payroll provider files and deposits against them; ask yours which registrations it will do for you and which it leaves to you.
How the company can pay for your health insurance
Section 106 excludes employer-provided health coverage from an employee's gross income (IRC 106), and section 105(b) does the same for reimbursed medical expenses. For an S-corp, the law says a shareholder owning more than 2 percent isn't an employee for this purpose (IRC 1372). Nothing in the Code carves out a C-corp shareholder that way. Whether you qualify turns on ordinary common-law employee status, so confirm it with whoever prepares the corporate return before you rely on the exclusion.
At an S-corp, the more-than-2-percent shareholder has to include the premiums in W-2 wages (though not in Social Security and Medicare wages) and then claim the self-employed health insurance deduction on their own return (IRS Notice 2008-1). That deduction is limited to the wages the S-corp pays them (IRC 162(l)). The S-corp path works, but it takes more steps.
The rule that matters for a company of one
The federal group health plan requirements, including the ACA market reforms, don't apply to a plan that has fewer than two participants who are current employees on the first day of the plan year (IRC 9831(a)(2), 26 CFR 54.9831-1(b)). ERISA has the same exception for its group health rules (29 U.S.C. 1191a).
That changes what an ICHRA is for you. The individual coverage HRA rules in 26 CFR 54.9802-4 exist so a reimbursement arrangement can be integrated with individual coverage and satisfy those requirements. While you're the only current employee covered, the requirements don't reach the plan. The conditions start to matter on the first day of a plan year when a second current employee is a participant.
| Route | How it works | 2026 limit | What to check |
|---|---|---|---|
| HRA (ICHRA once you have staff) | The company reimburses individual-market premiums and medical expenses | No dollar cap appears among the ICHRA conditions; the plan sets the allowance | From two current-employee participants on, the 54.9802-4 conditions apply: enrollment in individual coverage, the same terms within each class of employees, and no choice between it and a traditional group plan for the same class |
| QSEHRA | Reimbursement for employers that offer no group health plan to any employee and aren't an applicable large employer (IRC 9831(d)) | $6,450 self-only, $13,100 family (Rev. Proc. 2025-32 section 4.63), prorated for part of a year | Written notice to each eligible employee, proof of coverage before the first reimbursement, and the permitted benefit reported in W-2 box 12 with code FF |
| Group plan | The company buys a small-group policy | Set by the carrier | Whether a carrier will treat a company whose only worker is its owner as a small employer |
The group plan question is about eligibility. The federal small-employer definition requires at least one employee (45 CFR 144.103), and the ERISA rule it borrows doesn't count a sole owner and spouse as employees of their own business (29 CFR 2510.3-3(c)). Those two rules don't settle whether you qualify, so ask a broker in your state.
A QSEHRA has two more rules to know. It has to be offered to every eligible employee on the same terms, and each reimbursement is excluded only for a month in which the person has minimum essential coverage (IRC 106(g), Notice 2017-67).
Check the premium tax credit before you set an allowance
Either arrangement can cost you an exchange premium tax credit. With a QSEHRA, an affordable benefit leaves no credit for that month, and an unaffordable one reduces the credit by the monthly benefit (IRC 36B(c)(4)). With an HRA that meets the ICHRA rules, an affordable offer ends the credit even if you decline it, and an unaffordable one leaves the credit available only if you opt out (26 CFR 1.36B-2(c)(3)). The two affordability tests use different benchmarks: the second-lowest-cost silver plan for a QSEHRA and the lowest-cost silver plan for an ICHRA.
How the credit treats an owner-only HRA that doesn't follow the ICHRA rules isn't settled by those regulations. If the credit matters to you, work that out with your preparer 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. Your payroll provider will ask for the account numbers before the first run, so start here.
- Pick a payroll provider and connect the bank account. At one employee, compare 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.
- Set up the health arrangement. A QSEHRA needs a written notice to each eligible employee 90 days before the year starts, or when they first become eligible (IRC 9831(d)(4)). An ICHRA needs one 90 days before each plan year, with an exception for a company set up less than 120 days before its first plan year. Both need proof of coverage and substantiation of each claim. ERISA's written-plan rule doesn't reach an arrangement that covers only a sole owner and spouse (29 CFR 2510.3-3), so ask an administrator which documents it considers necessary for yours.
- Run the first payroll and check the first filing. Form 941 is due by the last day of the month after the quarter ends (Form 941 instructions). Confirm it was filed and that the state deposit cleared.
- Put the W-2 and the plan documents somewhere you will find them in March.
What the whole thing costs
Payroll providers and reimbursement-arrangement administrators each set their own prices, so check their current pricing pages. Workers compensation rules are set by each state, including whether a corporate officer must be covered, so ask your state or your payroll provider before the first run.
Against that, the employer payroll tax on a $120,000 salary is $9,222 before state unemployment insurance, 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.
For how much to pay yourself at each stage, with a payroll-based salary benchmark, see how to pay yourself as a startup founder. Once payroll runs, every pay date adds entries your books need to match. You can see Median's pricing before you talk to anyone.