Single Employee S Corp - Wage/Salary Options

I'm starting a self-employed S-Corp to perform software development services for which I will charge an hourly rate. I'm setting myself up as the sole employee of the S-Corp and will pay myself using a payroll service. However, I'm trying to understand my options with regards to paying myself. Since I'll be working on an hourly basis, I'm considering paying myself hourly wages rather than a fixed salary since I expect there to be slow times with little-to-no work. However, I would like to have the company compensate me for my health insurance premiums in order to be able to claim them as a self-employment deduction on my personal income taxes.

So, can I set my fixed salary to be just the amount to cover my health insurance and then make the rest of my income wage-based? I'm aware of the whole "reasonable compensation" IRS rule and the wage I have chosen is consistent with what others charge in my area.

Any advice on this would be most appreciated!

The "reasonable salary" requirement is so gray, I'm not sure you'll ever get a concrete answer. One of the benefits of being an S-corp is that you can avoid paying self-employment (payroll) tax on any profits above and beyond your "reasonable salary". So there is a huge incentive on your part to make that reasonable salary as low as possible. It really has nothing to do with health insurance premiums per say.

That said, check out the IRS guidelines for S Corporation Compensation and Medical Insurance Issues. If your state allows it, you can pay your entire premium as the business, which is deductible as wages for the s-corp, but you claim as earned income. I believe that income can also contribute to your "reasonable salary". Also, that "reasonable salary" can change and you really only have to decide on it once per year (at the end of the year nonetheless). So you can always choose the best (read: lower) option of hourly vs. salary. Your "reasonable salary" is never more than the profit of your business since you are a 1-person s-corp. Keep that in mind as well when allocating your salary.

I am not a lawyer, so obviously check with one before you act.