S-Corp Tax Savings Calculator (2026)
Compare self-employment tax as a sole proprietor with payroll tax as an S-corp owner-employee, and see your estimated net saving after payroll and admin costs.
Estimate Your S-Corp Saving
Your net business profit for the year, before paying yourself a salary.
W-2 wages for the work you do, at a market rate for a comparable job. This is the only part taxed as payroll.
Payroll service, extra tax-return preparation, bookkeeping and state fees beyond what you pay now.
Payroll tax here is the combined employer plus employee share (15.3% total). Federal income tax is not included because S-corp income still passes through to your personal return and is taxed as ordinary income in both cases. Estimate only, not tax advice.
How the S-Corp Saving Works
A sole proprietor pays self-employment tax on almost all of the business profit. An S-corp owner-employee splits the same profit into two parts: a reasonable W-2 salary, which is subject to payroll tax, and shareholder distributions, which are not subject to self-employment or payroll tax. The saving comes only from the distribution part, so the salary must be realistic first.
- Sole proprietor: self-employment tax is 15.3% in total, made up of 12.4% Social Security and 2.9% Medicare, applied to 92.35% of net profit. The Social Security part stops at the 2026 wage base of $184,500. Medicare has no cap.
- S-corp salary: the same 12.4% plus 2.9% applies, but only to the W-2 salary, not to distributions. Social Security on salary also stops at the $184,500 wage base for 2026.
- Distributions: profit left after salary is not subject to self-employment tax or payroll tax, but it is still taxed as ordinary income on your personal return.
- Reasonable salary: the IRS requires a shareholder who works in the business to take reasonable compensation before distributions. There is no fixed IRS percentage. Pay, duties, hours, experience and comparable market salaries all matter, and a salary set too low can be reclassified as wages, with back payroll taxes, penalties and interest.
- Costs matter: running payroll, filing Form 1120-S, extra bookkeeping and state fees typically add roughly $2,500 to $4,000 a year for a small single-owner S-corp. That is why the saving is often small or negative at low profits and grows as profit rises.
S-corp payroll tax = 12.4% x min(salary, $184,500) + 2.9% x salary
Gross saving = sole proprietor SE tax minus S-corp payroll tax
Net saving = gross saving minus annual payroll and admin costs
Worked Example: $120,000 Profit, $60,000 Salary, $2,500 Costs
| Calculation | Annual | |
|---|---|---|
| Sole proprietor SE base | 92.35% x $120,000 | $110,820.00 |
| Sole proprietor Social Security | 12.4% x $110,820 | $13,741.68 |
| Sole proprietor Medicare | 2.9% x $110,820 | $3,213.78 |
| Sole proprietor SE tax | $16,955.46 | |
| S-corp Social Security on salary | 12.4% x $60,000 | $7,440.00 |
| S-corp Medicare on salary | 2.9% x $60,000 | $1,740.00 |
| S-corp payroll tax on salary | $9,180.00 | |
| Gross saving | $16,955.46 minus $9,180.00 | $7,775.46 |
| Net saving after $2,500 costs | $5,275.46 |
Your Comparison, Updated Live
Change any number in the calculator above and this table updates with it.
| Comparison | Annual amount |
|---|---|
| Sole proprietor self-employment tax | $16,955.46 |
| S-corp payroll tax on salary only | $9,180.00 |
| Gross payroll-tax saving | $7,775.46 |
| Net saving after payroll and admin costs | $5,275.46 |
When Does an S-Corp Start to Pay Off?
There is no single break-even profit that fits everyone, because the answer depends on your reasonable salary and your actual admin costs. As a rule of thumb, many CPAs describe roughly $50,000 to $60,000 of annual net profit as the range where an S-corp election starts to look worthwhile, and the case gets stronger as profit grows. The table below uses $2,500 of annual costs throughout so the pattern is easy to see.
| Profit | Salary used | Sole prop SE tax | S-corp payroll tax | Net saving after $2,500 costs |
|---|---|---|---|---|
| $60,000 | $40,000 | $8,477.73 | $6,120.00 | -$142.27 |
| $120,000 | $60,000 | $16,955.46 | $9,180.00 | $5,275.46 |
| $200,000 | $80,000 | $28,234.30 | $12,240.00 | $12,994.30 |
At $60,000 of profit the gross saving does not even cover $2,500 of costs in this example, which is why a low-profit business should be cautious. At $120,000 and above the saving clears the costs by a comfortable margin, provided the salary is defensible. Do not force the result by entering an unrealistically low salary: the IRS can undo that saving.
What This Calculator Leaves Out
- Federal and state income tax: excluded on purpose, because pass-through income is taxed as ordinary income in both structures. Your income-tax bill can still change through deductions such as the qualified business income deduction, so talk to a CPA before electing.
- Additional Medicare tax: the extra 0.9% on earnings above $200,000 for single filers ($250,000 joint) is not included, to keep the comparison transparent.
- Unemployment taxes and state fees: federal and state unemployment tax, workers compensation where required, and state franchise or annual fees vary by state and are not in the payroll-tax lines. Include your best estimate of them in the admin-costs box.
- One-off setup costs: forming the entity, electing S-corp status on Form 2553 and setting up payroll are one-time costs, not annual costs, so they are not subtracted here.
