Updated November 1, 2026 for the 2026 tax year
How an S-corp saves tax
As a regular single-member LLC, all of your profit is subject to 15.3% self-employment tax. After an S-corp election, you split profit into two parts: a salary you pay yourself through payroll, which gets Social Security and Medicare tax, and distributions, which don't. The savings come from the distribution part.
The catch: a reasonable salary
The IRS requires S-corp owners who work in the business to pay themselves reasonable compensation, meaning about what you'd pay someone else to do the same work. Setting a very low salary to dodge payroll tax is a common audit trigger. Base the number on real pay data for your role and area.
The extra costs
- A payroll service, often a few hundred dollars a year or more
- A separate business tax return (Form 1120-S), which usually costs more to prepare
- Some states charge extra fees or taxes on S-corps
When it usually makes sense
There's no single cutoff, but the math often starts working once profit is comfortably above a reasonable salary, frequently somewhere around $60,000 to $100,000 of profit or more, depending on your salary and costs. Use the calculator with honest numbers, then confirm with a CPA before filing Form 2553.
What this calculator leaves out
It compares payroll tax to self-employment tax only. It doesn't model income tax changes such as the employer's share of payroll tax being deductible, the QBI deduction shifting, retirement contributions, or state rules. Treat the result as a first look.
Common questions
Is an S-corp a different business than an LLC?
No. An S-corp is a tax election. Your LLC stays an LLC legally; it just files taxes as an S corporation after you file Form 2553.
How much salary do I have to pay myself?
A reasonable amount for the work you do. The IRS looks at what similar businesses pay for similar services. There's no fixed percentage.
Can I switch back later?
Yes, you can revoke the election, but you generally have to wait five years to elect S-corp status again, so treat it as a multi-year decision.
Sources: IRS Form 2553 instructions, IRS guidance on S corporation compensation, Social Security Administration 2026 wage base.