An S corporation can lower your self-employment tax by splitting profit into a reasonable salary, which carries payroll taxes, and distributions, which don’t. Enter your profit, the salary you would pay yourself and the extra cost of running an S corp to see whether the election pays off.
Free tool
S corp tax savings calculator
Compare the self-employment tax you pay as an LLC with the payroll taxes on a reasonable salary as an S corporation, after the extra cost of running one.
Federal figures for one owner: 15.3% self-employment tax on 92.35% of profit, Social Security tax on wages and earnings up to the wage base ($184,500 for 2026, $192,300 for 2027), and federal unemployment tax of up to $42 per employee. The estimate is before income tax and leaves out state unemployment tax, state taxes on S corporations (for example California’s 1.5%, minimum $800), the 0.9% Additional Medicare Tax and the qualified business income deduction, which can shrink when part of your profit becomes salary. Results are estimates for general information only, not legal, tax or financial advice. Confirm them with your own CPA, tax adviser or attorney before making decisions. Using this tool does not create a client relationship with Catching Numbers Inc.
How does an S corp save tax?
As a single-member LLC or partnership, you pay self-employment tax of 15.3% on 92.35% of your business profit, with the Social Security part (12.4%) applying up to the wage base: $184,500 for 2026 and $192,300 for 2027. As an S corporation, you pay yourself a salary through payroll, and only that salary carries Social Security and Medicare taxes (7.65% from the company plus 7.65% withheld from you). The rest of the profit comes to you as distributions, which are still subject to income tax but not to payroll taxes.
A worked example
- As an LLC. $120,000 of profit × 92.35% = $110,820 of net earnings. Self-employment tax at 15.3% is about $16,955.
- As an S corp. You pay yourself a $60,000 salary. Payroll taxes at 15.3% are $9,180, plus $42 of federal unemployment tax.
- Running costs. Say payroll software, the S corp return and state fees add $2,000 a year.
- Difference. $16,955 − $9,180 − $42 − $2,000 ≈ $5,733 a year of payroll tax savings, before income tax effects.
What counts as a reasonable salary?
The IRS expects an S corporation to pay owners who work in the business reasonable compensation before it pays them distributions. It looks at factors such as your training and experience, your duties and time spent, what comparable businesses pay for similar services, and what the business could afford. Setting the salary too low to save tax is the most common way S corps get into trouble. See the IRS page on S corporation compensation.
What the calculator leaves out
- Income tax. Both setups let you deduct the employer share of payroll or self-employment tax, so the income tax difference is usually small, but your tax CPA should confirm it.
- The qualified business income deduction. Your S corp salary is not qualified business income, so a higher salary can lower that 20% deduction.
- State taxes. Some states tax S corporations directly: California charges 1.5% of net income with an $800 minimum, and New York City and the District of Columbia don’t recognize S status at all.
- State unemployment tax on your salary, which depends on your state and rate.
For when to elect, when not to and every compliance step, read our owner’s draw vs salary guide and our comparison of S corporation vs C corporation.
Frequently asked questions
At what profit does an S corp make sense?
There is no single number. It depends on the reasonable salary for your role, your state and what payroll and the extra return cost you. Run your own numbers above: the election usually starts to pay once profit is well above a reasonable salary for the work you do.
Can an LLC be taxed as an S corp?
Yes. An eligible LLC files Form 2553 to elect S corporation status. It stays an LLC under state law; only its federal tax treatment changes, and it does not need to file Form 8832 first.
What is the Social Security wage base for 2026 and 2027?
$184,500 for 2026 and $192,300 for 2027, as announced by the Social Security Administration in October 2026. The 12.4% Social Security part of self-employment and payroll taxes applies only up to that amount of earnings or wages each year; the 2.9% Medicare part has no cap. The calculator lets you pick either year.
Do I have to run payroll for myself in an S corp?
Yes. A shareholder who works in the business is an employee, so the S corp withholds and pays payroll taxes on your salary, files quarterly Form 941 and issues you a W-2.
Is my data saved?
No. The calculator runs in your browser, and nothing you type is sent to us or stored.
Do you file the S corp election or the return?
We don’t prepare tax returns or elections. We set up payroll and keep the S corp’s books, and work alongside your tax CPA, who files Form 2553 and Form 1120-S.
Thinking about an S corp?
We set up payroll, separate salary from distributions in your books and keep everything ready for your tax CPA.