S corp savings calculator

By Tom, CPA · Updated October 27, 2026

TL;DR: An S corp election can save self-employment tax because only your salary gets the 15.3% payroll tax, not the distributions. But you must pay yourself a reasonable salary, run payroll and file a separate return. This calculator compares 2026 self-employment tax with S corp payroll tax and subtracts your extra costs. Savings usually only beat the hassle once profit is well above a reasonable salary.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

Every self-employed person eventually hears "you should be an S corp" from a friend, a podcast or a guy at the gym with very strong opinions. Sometimes it's right. The election lets business profit be split into a salary (subject to Social Security and Medicare taxes) and distributions (not subject to them). Sometimes it's wrong, because the salary must be reasonable and the paperwork costs real money.

This tool shows the payroll tax math using 2026 rates and the $184,500 Social Security wage base (SSA). Background: sole prop vs. LLC vs. S corp and the self-employment tax guide.

CPA Warning Label: A salary set unreasonably low to dodge payroll tax is a well-known IRS target, and the IRS can recharacterize distributions as wages with back taxes and penalties. Set the salary from real market data, and document it.

How to use it

• Net profit: business income minus expenses, before paying yourself.
• Reasonable salary: what you'd pay someone else to do your job, considering your duties, hours and local pay data. This is the input that matters most, and the one people fudge the most.
• Extra costs: payroll service, the Form 1120-S return, state franchise or minimum taxes, and extra bookkeeping. These vary a lot by state.

How it calculates

• Sole prop: self-employment tax on 92.35% of profit: 12.4% Social Security up to $184,500 plus 2.9% Medicare on all of it (Topic 554).
• S corp: 15.3% on salary (employer and employee halves combined), with the same wage base.
• Savings: the difference, minus your extra costs.

It assumes no other wages. It leaves out the 0.9% Additional Medicare Tax (over $200,000 single or $250,000 joint), state unemployment taxes, and income tax effects. Both structures deduct roughly the employer-equivalent half of payroll taxes, but an S corp salary can reduce the QBI deduction, and retirement contributions are based on salary rather than all profit, which can cut your maximum SEP or solo 401(k) contribution.

Illustration

Lena, a consultant, nets $100,000. Sole prop: self-employment tax is $14,129.55. As an S corp paying herself a $50,000 salary, payroll tax is $7,650, which saves $6,479.55 before costs. With $2,500 of extra costs, the net savings are about $3,980 a year.

Now say a reasonable salary for her role is $80,000: payroll tax becomes $12,240, gross savings $1,889.55, and after $2,500 of costs she's actually behind by about $610. Congratulations, you paid extra for a fancier tax form. Still worth the hassle? Maybe not. At $40,000 of profit and a $40,000 salary, the S corp loses money. The election works best when profit greatly exceeds a defensible salary.

Trade-offs the savings number hides

• Smaller Social Security record: paying less payroll tax also means lower covered earnings, which can mean a smaller future Social Security benefit. For high earners near the wage base, the effect is modest; for others it matters.
• Lower retirement plan limits: a solo 401(k) employer contribution is based on your W-2 salary, so a lean salary limits how much you can shelter.
• QBI interplay: the salary reduces qualified business income, which can trim the 20% QBI deduction. Above the 2026 thresholds ($201,750 single, $403,500 joint), W-2 wages can also help the deduction, so the effect cuts both ways.
• Health insurance: more-than-2% shareholders handle health premiums through payroll before taking the self-employed health insurance deduction; see the self-employed health insurance deduction.
• Harder exit: taking appreciated property out of an S corp can trigger gain, and liquidating takes paperwork.

Before you elect

• File Form 2553, generally within 2 months and 15 days of the start of the tax year for it to apply that year, and late-election relief may be available.
• Set up payroll, with quarterly Form 941 filings and W-2s.
• Keep business and personal funds separate. Distributions shouldn't replace salary.
• Check your state: some charge entity-level taxes or don't recognize S corps the same way.
• Rentals almost never belong in an S corp; see the rental S corp mistake.

Compare with the self-employment tax calculator, or browse all calculators.