S-Corp Tax Savings Calculator: Should You Elect S-Corp Status?
Updated July 10, 2026 · Reviewed by Max Berger, Co-Founder
Electing S-Corp status can cut your self-employment tax by letting you split business income into a reasonable salary and a distribution, but it adds payroll and filing costs. This calculator compares the federal self-employment tax you pay now against S-Corp payroll tax plus compliance costs, so you can see the net annual savings.
Enter your profit and the salary you could defend as reasonable to get an estimate and a quick verdict. Figures are federal only and for planning, not tax advice.
Net annual savings
$6,375
Net savings of $6,375 a year. That is usually worth discussing with a CPA.
- Self-employment tax now
- $16,955
- S-Corp payroll tax
- $9,180
- Savings before compliance costs
- $7,775
- Added compliance costs
- $1,400
This tool estimates federal tax only. Your state may charge its own franchise tax, S-Corp tax, or filing fee, and state income tax still applies to your salary and distributions. Confirm with a local CPA.
Footnote: half of your self-employment tax is deductible against income tax. This version compares gross self-employment tax against gross S-Corp payroll tax, so the true net benefit is somewhat smaller. Treat this as a starting estimate.
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How this calculator works
This calculator compares federal payroll taxes under two structures. As a sole proprietor or default LLC, self-employment tax is charged on 92.35 percent of your net profit: 15.3 percent up to the Social Security wage base of $176,100, then 2.9 percent Medicare on earnings above that base, plus an additional 0.9 percent Medicare on the amount above 200,000 dollars. The 92.35 percent factor is applied consistently across all three tiers.
As an S-Corp, you pay yourself a reasonable W-2 salary and payroll tax applies only to that salary using the same 15.3 percent, 2.9 percent, and 0.9 percent wage-base tiers. The profit left over after your salary is distributed without self-employment or payroll tax. The difference between the two payroll tax figures is your savings before costs.
From that we subtract the added compliance costs of running an S-Corp: a payroll service (600 dollars per year by default), extra tax preparation for the 1120-S return (800 dollars by default), and any state franchise fee (0 by default). All three are editable under Advanced assumptions. The result is your net annual savings, and the verdict flags savings at or above $3,000 per year as worth discussing.
Footnote on the deduction: half of self-employment tax is deductible against your income tax, which slightly narrows the real gap between the two structures. This version compares gross self-employment tax against gross S-Corp payroll tax and does not model that income-tax offset, so treat the savings as an upper-bound estimate.
QBI caveat: paying yourself a W-2 salary reduces the qualified business income that qualifies for the 20 percent QBI deduction, which can claw back part of the payroll tax savings shown here. This interaction depends on your total taxable income and is not computed. It is a concrete reason to get professional review before electing.
State caveat: the state selector shows a note only and does not compute any state tax. Some states charge franchise taxes or fees, and some localities such as New York City do not recognize the federal S-Corp election. State income tax still applies to your salary and distributions. Confirm your state and local treatment with a CPA.
Worked example
Take an owner with $120,000 of net profit who could defensibly pay themselves a $60,000 salary. As a sole proprietor, self-employment tax is $120,000 times 0.9235 times 15.3 percent, which is $16,955. All of it sits below the $176,100 wage base, so no Medicare-only or additional Medicare tiers apply.
As an S-Corp, payroll tax is charged only on the $60,000 salary: $60,000 times 15.3 percent, which is $9,180. That is $7,775 less than the sole proprietor self-employment tax.
Subtract the default compliance costs of $1,400 (600 dollars payroll service plus 800 dollars extra tax prep) and the net annual savings comes to $6,375. Because that clears the $3,000 threshold, the verdict is that an S-Corp election is worth discussing with a CPA, keeping the QBI and state caveats in mind.
Frequently asked questions
What is a reasonable salary for an S-Corp owner?
A reasonable salary is the wage you would have to pay someone else to do your job, based on your role, industry, hours, and experience. The IRS requires S-Corp owner-employees to take reasonable compensation before any tax-advantaged distributions. A common starting point is 40 to 50 percent of profit, but the right number depends on your facts, so document how you set it.
At what profit does an S-Corp start to make sense?
The election tends to pay off once net profit is high enough that the self-employment tax you avoid on distributions clearly beats the added payroll and filing costs. Many owners find that point somewhere around 60,000 to 80,000 dollars of profit or more. Use the calculator with your own reasonable salary to see where you land, since the exact break-even depends on the salary you can defend.
What does electing S-Corp status actually require?
You file Form 2553 to elect S-Corp treatment, then run formal payroll for your reasonable salary with withholding and payroll tax filings. The business files an 1120-S return each year and issues you a W-2 and a Schedule K-1. This is why the calculator adds payroll service and extra tax prep costs to the comparison.
Does an S-Corp reduce the QBI deduction?
It can. Paying yourself a W-2 salary lowers the qualified business income that flows through to you, which can shrink the 20 percent QBI deduction compared with a sole proprietor. That interaction can offset part of the payroll tax savings, so this tool flags it as a reason for professional review rather than trying to compute it.
Are there state gotchas with an S-Corp election?
Yes. California imposes an annual franchise tax with an $800 minimum plus a 1.5 percent tax on S-Corp net income, and New York City does not recognize the federal election and taxes S-Corps under its General Corporation Tax. Other states have their own fees and rules. This calculator shows a note for your state but does not compute state tax in this version.
What is the deadline to elect S-Corp status?
To have the election apply for the current tax year, Form 2553 is generally due within two months and 15 days after the start of that year, so by roughly mid-March for a calendar-year business. The IRS does allow late-election relief in some cases. Confirm the current deadline and any relief options with a CPA before you file.
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Book a callThese results are estimates for planning purposes only and are not tax or legal advice. Rules, rates, and thresholds change; figures on this page are current as of July 10, 2026. Consult a CPA or attorney about your specific situation before acting.