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S Corp

How an S corporation can lower self-employment tax, what the IRS means by reasonable compensation, the extra costs, and a calculator for your own savings.

Updated November 4, 2026. Free, no sign-up; everything runs in your browser and nothing you type is stored.

S corp tax savings calculator

Business profit before owner pay ($)Reasonable salary you'd pay yourself ($)Extra S corp costs: payroll, tax return, state fees ($/year)

Employment tax saved

–

–Self-employment tax as a sole proprietor / LLC

–Payroll taxes on your S corp salary

–Distributions (no payroll tax)

How an S corp saves self-employment tax

A sole proprietor or single-member LLC pays 15.3% self-employment tax (12.4% Social Security up to $184,500 in 2026, plus 2.9% Medicare) on 92.35% of profit. An S corporation instead pays you a salary, with the same 15.3% payroll taxes split between you and the company, and the rest of the profit can come out as distributions, which aren't subject to employment taxes (IRS).

Example: $120,000 of profit: self-employment tax is about $16,955. As an S corp paying a $60,000 salary, payroll taxes are $9,180, so you'd save about $5,775 a year after $2,000 of extra costs.

The catch: reasonable compensation

The IRS requires S corporations to pay shareholder-employees reasonable compensation before taking distributions, and it can reclassify distributions as wages. Factors include your training and experience, duties, time spent, what comparable businesses pay and what you pay non-owner staff. Paying yourself too little to cut payroll tax is the most common S corp audit issue.

Is an S corp worth it?

Usually worth a look once profit is well above a reasonable salary for your work.
Extra costs: running payroll, a separate business tax return (Form 1120-S) and state fees; some states tax S corps.
A lower salary also means lower Social Security credits and a smaller solo 401(k) employee-plus-employer contribution base.

Compare retirement options with the solo 401k and SEP IRA calculator and estimate your quarterly taxes with the self-employment tax estimator.

Common questions

What is an S corp?

A corporation (or LLC) that elects to pass income through to its owners; owners who work in the business are paid a salary and can take the rest as distributions.

How much does an S corp save in taxes?

About 15.3% of the profit you take as distributions instead of salary, up to the Social Security wage base, minus extra costs.

What is reasonable compensation for an S corp owner?

A salary that matches what the business would pay someone else for your work; the IRS lists factors like duties, time and comparable pay.

Are S corp distributions taxed?

They're subject to income tax on your personal return but not to Social Security and Medicare taxes.

Sources

More paycheck and tax calculators: Medical Savings Account (Archer MSA) · Personal Property Tax · Short Term Disability Insurance · Social Security 1099 (SSA-1099)

General information, not financial, tax or legal advice. Check important numbers with the official source before acting on them.