How S-Corp tax savings actually work
The S-Corp savings are about self-employment tax, not income tax. As a sole proprietor or a single-member LLC taxed the default way, every dollar of net profit is hit with roughly 15.3% in self-employment tax (12.4% Social Security up to the annual wage base, plus 2.9% Medicare with no cap) — on top of income tax.
Elect S-Corp status and the picture changes. You become an employee of your own company and pay yourself a reasonable salary, which is subject to the same ~15.3% in payroll tax. But the profit left over after that salary is taken as a distribution, and distributions are not subject to self-employment or payroll tax. Your income tax comes out about the same either way, so the whole advantage is the FICA tax you avoid on that distribution.
That's exactly what the calculator does: it figures your self-employment tax as-is, subtracts the payroll tax on the salary you'd pay yourself as an S-Corp, and then subtracts the added cost of actually running one — payroll and a separate return — to show a realistic net number.
When an S-Corp makes sense (and when it doesn't)
The election tends to pay off once your profit is comfortably higher than a reasonable salary for your work — often somewhere north of $40,000–$80,000 in profit and up. Below that, the savings on a small distribution are usually swallowed by the extra costs: running formal payroll, filing a separate Form 1120-S, and any state franchise fees.
Two things make or break it. First, the reasonable salary has to be defensible — setting it artificially low to dodge payroll tax is a classic audit trigger, so the calculator lets you test honest salary levels. Second, you have to actually run the S-Corp correctly: payroll every period, clean books, and a timely return. That administrative discipline is where a lot of would-be S-Corp savings quietly leak away — and where a good bookkeeper earns their keep.
Want to go deeper? Read how much an S-Corp actually saves, the full S-Corp vs LLC comparison, and how to set a reasonable S-Corp salary, or see the whole system in our complete guide to small business bookkeeping.
What this calculator doesn't include
To keep it simple, this estimate uses only federal self-employment and FICA rates. It does not factor in your state's taxes or S-Corp fees, the qualified business income (QBI) deduction, the 0.9% additional Medicare tax on higher earners, federal and state unemployment tax on your salary, or the details of your personal return. Any of those can move the real number up or down. Treat the result as a directional estimate, then confirm the decision — and the right salary — with a qualified CPA or tax professional.
S-Corp savings FAQ
How much can an S-Corp save me on taxes?
The savings come from self-employment (FICA) tax, not income tax. As a sole proprietor or single-member LLC, all of your net profit is subject to about 15.3% self-employment tax. As an S-Corp, only your reasonable W-2 salary is subject to that tax — the remaining profit is taken as a distribution that is not. Many owners with $80,000 to $200,000 in profit save a few thousand to over ten thousand dollars a year, after the added cost of running payroll and a separate business return. Income tax is roughly the same either way, so the S-Corp advantage is specifically the FICA tax avoided on the distribution.
What is a reasonable salary for an S-Corp owner?
The IRS requires S-Corp owner-employees to pay themselves a reasonable salary — roughly what you would pay someone else to do your job — before taking distributions. It should reflect your role, experience, hours, and industry pay, and be supportable if questioned. Setting the salary artificially low to dodge payroll tax is a common audit trigger. A good bookkeeper or tax pro can help you land on a defensible number; this calculator lets you test different salary levels to see the effect.
At what income is an S-Corp worth it?
There is no hard cutoff, but electing S-Corp status usually starts to make sense once net profit is comfortably above your reasonable salary — often somewhere in the $40,000 to $80,000 profit range and up. Below that, the FICA savings on a small distribution are frequently eaten up by the added costs: running payroll, filing a separate 1120-S return, and any state fees. The higher your profit relative to a reasonable salary, the more an S-Corp tends to save.
Does electing S-Corp status cost anything?
Yes — an S-Corp adds ongoing costs that a sole proprietorship or default LLC does not have. You must run formal payroll for yourself (with a payroll service and payroll-tax filings), file a separate S-Corp tax return (Form 1120-S), and in some states pay franchise taxes or fees. Those costs commonly run a couple thousand dollars a year, which is why the election only pays off once the FICA savings clearly exceed them. This calculator subtracts an estimated added cost so you see the net benefit.
Is this calculator tax advice?
No. It is a simplified educational estimate, not tax, legal, or financial advice. It uses standard federal self-employment and FICA rates and does not account for your state taxes, the qualified business income (QBI) deduction, additional Medicare tax, unemployment tax, or your full personal situation. Whether an S-Corp is right for you — and what salary is reasonable — should be decided with a qualified CPA or tax professional. Tides can keep your books and payroll clean so that decision is easy to make and act on.