Most NJ owners assume filing a federal S-Corp election automatically makes them an S-Corp in New Jersey. That's only partially true.

S-Corp salary vs distributions rules are changing in 2026. The IRS is now using AI to flag owners with low wages and high distributions—especially December "catch-up" payrolls. If your business earns $200K–$350K, reasonable compensation should be $85K–$140K, not the $35K–$60K many try. SECURE 2.0 eliminates year-end fixes, and NJ's BAIT election requires aligned wages. Essex County S-Corp owners in therapy, consulting, and agencies face the highest audit risk.