S Corp Tax Savings Calculator

As a sole proprietor or single-member LLC, you pay 15.3% self-employment tax (Social Security + Medicare) on essentially all your net business profit. As an S-corp, you only pay payroll tax (the same 15.3%, split employer/employee) on the salary you pay yourself — any additional profit taken as a distribution isn't subject to that 15.3% at all, only regular income tax.

The IRS requires S-corp owner-employees to pay themselves a 'reasonable salary' for the work they actually do, based on what similar roles pay in your industry and location — before taking any additional profit as distributions. Paying an artificially low salary just to avoid payroll tax is a well-known audit trigger; this calculator lets you enter your own reasonable-salary estimate.

A commonly-cited rough guideline is 40-60% of net business profit, though this is only a starting point — actual reasonable compensation depends on your specific role, hours worked, industry, and location (the IRS and courts often look to Bureau of Labor Statistics wage data for comparable positions). This calculator can suggest 50% of profit as a starting point, but you should adjust it to reflect your actual role.

No — S-corps have real added costs (separate tax return preparation, payroll processing, formal bookkeeping) that aren't factored in here. The estimated savings shown should be weighed against those added administrative costs, which commonly run $1,000-$3,000+ per year depending on your accountant and payroll provider.

Yes — the 12.4% Social Security portion only applies up to the annual wage base ($184,500 for 2026); above that, only the 2.9% Medicare portion continues to apply (plus an additional 0.9% Medicare tax above $200,000). This calculator applies that cap to both the sole proprietor and S-corp calculations.