About the S Corp Tax Calculator
This S corp calculator estimates how much you could save by having your LLC or sole proprietorship taxed as an S corporation. As a sole proprietor or single-member LLC you pay 15.3% self-employment tax on about 92.35% of your net profit. As an S corp owner-employee you pay yourself a reasonable salary — which carries the same 15.3% payroll tax — and take the remaining profit as distributions that are free of Social Security and Medicare tax.
Enter your net business profit, the salary you would pay yourself, the extra annual cost of running an S corp (payroll service, extra tax return, state fees) and your marginal income tax rate. The calculator compares both setups, including the income tax effect of the deductible half of self-employment tax and the employer share of payroll tax, and shows your net savings and a chart of savings at different salary levels.
The IRS requires S corp owners who work in the business to take reasonable compensation — roughly what you would pay someone else to do the job — so do not set the salary unrealistically low. The calculator uses the 2026 Social Security wage base of $184,500 (IRS Publication 15). It does not model the QBI deduction (which an S corp salary reduces), state payroll or unemployment taxes on the salary, or the 0.9% Additional Medicare Tax — which, for profits above $200,000 ($250,000 joint), would make the sole-proprietor SE tax and therefore the S corp saving somewhat larger than shown.
With the default inputs, the estimated net yearly savings is $5,360.16. Change any value above to recalculate instantly.
How to use the s corp tax calculator
- 1Enter your expected net profit before paying yourself.
- 2Enter a reasonable salary for the work you do in the business.
- 3Add the extra yearly cost of payroll, bookkeeping and the 1120-S return.
- 4Enter your combined marginal income tax rate.
- 5Compare net savings, and use the chart to see how salary changes them.
Formula and method
As a sole proprietor, self-employment tax applies to 92.35% of net profit (P): 12.4% Social Security up to the $184,500 wage base and 2.9% Medicare on all of it. As an S corp, only the salary (S) bears payroll tax — 7.65% from the employer and 7.65% from you — while the remaining profit is paid as distributions without payroll tax.
Income tax also shifts slightly. Sole proprietors deduct half of their SE tax; an S corp deducts the employer half of payroll tax and its extra running costs. The calculator multiplies that difference by your marginal rate (m) and subtracts it, then subtracts the extra costs to give net savings. The QBI deduction and additional Medicare tax are ignored.
- P
- Net business profit
- S
- Owner’s W-2 salary from the S corp
- m
- Marginal income tax rate
Worked examples
$120k profit, $60k salary
As a sole proprietor you would pay $16,955 of SE tax. Paying a $60,000 salary costs $9,180 in payroll tax, saving $7,775. After $2,000 of extra costs and $415 more income tax (smaller deductions), the S corp saves about $5,360 a year.
$250k profit, $100k salary, 32% bracket
Profit above the wage base only pays 2.9% Medicare as SE tax, so SE tax is $29,573. Payroll tax on a $100,000 salary is $15,300. After $3,000 of costs and the income tax adjustment, net savings are about $9,950.
$40k profit – not worth it
At $40,000 of profit the payroll tax saved ($1,062) is less than the $2,000 of extra costs, so an S corp would cost about $762 more a year than staying a sole proprietor.
Frequently asked questions
At what income does an S corp make sense?+
Many advisers use net profit of roughly $60,000–$80,000 as a starting point, because the payroll tax saved on distributions must exceed the extra cost of payroll, bookkeeping and a separate tax return. Run your own numbers — state fees can change the answer.
What is a reasonable salary for an S corp owner?+
It is what the business would pay someone else for the same work, based on duties, hours, experience and local pay data. The IRS can reclassify distributions as wages if salary is unreasonably low, adding back payroll tax, penalties and interest.
Is an LLC the same as an S corp?+
No. An LLC is a legal entity formed under state law; an S corp is a federal tax election. An LLC can elect S corp taxation by filing Form 2553, keeping the LLC’s legal structure while changing how profits are taxed.
Do S corp distributions avoid income tax?+
No. All S corp profit — salary and distributions — is subject to income tax on your personal return. Distributions only avoid the 15.3% Social Security and Medicare taxes.
Does an S corp affect the QBI deduction or retirement contributions?+
Yes. Salary paid to yourself reduces qualified business income for the 20% QBI deduction, and Solo 401(k) or SEP contributions are based on your W-2 salary rather than total profit, so a low salary limits them.
Tax results are estimates based on published rules and simplified assumptions. They are not tax advice — check official guidance or a tax professional for your situation.