S-Corp Tax Calculator (2026)
An S-corp election can cut self-employment tax. As a sole proprietor you pay 15.3% SE tax on all profit; as an S-corp you pay payroll tax only on a reasonable salary, and the rest taken as distributions avoids that tax. On $120,000 of profit with a $60,000 salary, the $60,000 of distributions saves roughly $9,000. Income tax is similar either way. Enter your profit and a salary below to see the savings.
How does an S-corp save taxes?
An S-corp owner pays payroll tax only on a reasonable salary; the remaining profit taken as distributions escapes the 15.3% self-employment tax.
How much can an S-corp save?
On $120,000 of profit with a $60,000 salary, the $60,000 of distributions can save roughly $9,000 in self-employment tax versus a sole proprietor.
What is a reasonable salary?
The IRS requires S-corp owners to pay themselves a reasonable salary for their work before taking distributions. Setting it too low is a common audit trigger.
When is an S-corp worth it?
Generally once net profit comfortably exceeds a reasonable salary — often around $80,000+ — so the payroll-tax savings outweigh the added payroll and filing costs.
How does an S-corp cut self-employment tax?
A sole proprietor or single-member LLC pays 15.3% self-employment tax on the entire net profit. An S-corporation splits that profit into two parts: a salary, which is subject to the same payroll taxes, and distributions, which are not. Because distributions skip the 15.3%, the owner saves payroll tax on every dollar moved from salary to distribution — within the limits of a reasonable salary.
- Set a reasonable salary for the work you actually do.
- Run payroll on that salary, paying Social Security and Medicare.
- Take the remaining profit as distributions, free of self-employment tax.
- Compare the payroll tax to the SE tax you would have paid as a sole proprietor.
How much does an S-corp save at different salaries?
The savings come entirely from the distribution portion. The table assumes $120,000 of profit and shows how the split changes the payroll tax.
| Salary | Distributions | Payroll tax | Saved vs sole prop |
|---|---|---|---|
| $50,000 | $70,000 | ~$7,650 | ~$9,750 |
| $60,000 | $60,000 | ~$9,180 | ~$8,200 |
| $80,000 | $40,000 | ~$12,240 | ~$5,100 |
What counts as a reasonable salary?
The IRS requires S-corp owner-employees to pay themselves a reasonable salary for the services they perform before taking distributions. There is no single formula, but the figure should reflect what you would pay someone else to do your job. Setting the salary artificially low to maximize distributions is one of the most common S-corp audit triggers, and the IRS can reclassify distributions as wages with back taxes and penalties.
When is an S-corp election worth it?
An S-corp adds costs: payroll processing, a separate 1120-S return, and often higher accounting fees. Those typically run $1,500-$3,000 a year, so the payroll-tax savings need to exceed them. As a rule of thumb the math works once net profit comfortably exceeds a reasonable salary — frequently around $80,000 of profit and up. Below that, a sole proprietorship or LLC is usually simpler and cheaper. Compare your numbers with our self-employed tax calculator and 1099 tax calculator.