See exactly how much self-employment tax an S-Corp election could save you versus a default LLC (sole proprietorship). Enter your net business profit and a reasonable salary to get your real, after-cost savings for 2026 — instant, private, and fully validated.
Self-employment tax savings (2026)
By default, a single-member LLC is taxed as a sole proprietorship: all of your net business profit is hit with self-employment (SE) tax — 15.3% (12.4% Social Security up to the 2026 wage base of $184,500, plus 2.9% Medicare with no cap). On $120,000 of profit, that's roughly $17,000 before income tax even starts.
When you elect S-Corporation status, you split that profit into two buckets: a reasonable W-2 salary (which still pays the full 15.3% FICA) and the remaining profit as a distribution, which is not subject to Social Security or Medicare tax. Only the salary is taxed for FICA — the distribution escapes the 15.3%. That gap is your savings. This calculator subtracts the real-world extra costs of running an S-Corp (payroll service, a separate 1120-S return, and bookkeeping — typically $1,200–$2,500/yr) so you see your true net savings, not a fantasy number.
The catch the IRS cares about: your salary must be reasonable for the work you do. Pay yourself too little to dodge payroll tax and you invite an audit and back taxes with penalties. A common benchmark is roughly 40%–60% of profit, adjusted for your industry and what you'd pay someone else to do your job.
Your W-2 salary always pays the full 15.3% FICA (Social Security capped at $184,500, Medicare uncapped). Distributions don't.
The IRS requires a defensible salary. Too low invites reclassification, back FICA, and penalties — keep it justifiable.
Payroll filing, a separate S-Corp return, and bookkeeping cost money. The election only pays off once savings clear those costs.
Most owners see a net benefit somewhere around $40K–$80K of profit. Below that, the admin cost can outweigh the FICA savings.
Across the United States, millions of freelancers, consultants, real-estate agents, and Amazon, Etsy & 1099 contractors run their business as a single-member LLC or sole proprietorship — and overpay self-employment tax doing it. The most-searched question for American small-business owners is simple: how much does an S-Corp save in taxes? This free S-Corp vs LLC tax calculator answers it for your exact 2026 numbers, comparing the 15.3% SE tax on a default LLC against the lower FICA bill of an S-Corporation that splits profit into a reasonable W-2 salary plus tax-free distributions.
Most CPAs suggest considering the S-Corp election (IRS Form 2553) once net profit reaches roughly $40,000–$80,000. Above that, the payroll-tax savings on distributions usually outweigh the extra cost of running payroll and filing a separate 1120-S return. Factor in state rules too — California charges an $800 minimum franchise tax plus a 1.5% S-Corp tax, while many states add no entity-level tax at all. Use the calculator to find your break-even and your real, after-cost annual savings.
A freelance marketing consultant in Texas nets $120,000 in profit. As a default LLC, the full amount is hit with self-employment tax of about $16,955. Electing S-Corp status with a $60,000 reasonable salary drops FICA to roughly $9,180 on the salary, and the $60,000 distribution avoids the 15.3% tax. After about $1,800 in payroll and tax-prep costs, the net saving is roughly $5,975 per year — money that stays in the business.
Self-employed professionals, freelancers, consultants, real-estate agents, online and Amazon/Etsy sellers, IT contractors, and any single-member LLC or sole proprietor in the United States deciding whether to elect S-Corporation tax status to cut self-employment tax.
A single-member LLC is taxed as a sole proprietorship by default, with all net profit subject to self-employment tax of 15.3% up to the Social Security wage base. Electing S-corporation status splits that profit into a reasonable salary, which bears payroll tax, and a distribution, which does not. The saving is real but bounded by two constraints: the salary must genuinely be reasonable for the work performed — the IRS litigates this — and the election brings payroll filings, a separate return and accounting costs that typically run $1,500–$3,000 a year. Below roughly $50,000 of profit the costs usually exceed the saving.
Sole proprietor: SE tax = net profit × 92.35% × 15.3%S-corp: payroll tax = reasonable salary × 15.3%Distributions are not subject to payroll taxNet benefit = SE tax saved − payroll and compliance costswhere:
Assumptions: Income tax is identical under both — the difference is purely payroll tax. QBI deduction interacts with the choice, since a lower salary raises QBI but may reduce the wage limitation above the threshold.
Compare payroll tax under each, then net off the cost of the election.
Result$9,071 of payroll tax saved — $6,671 net of compliance costs
Setting the salary at $70,000 on $140,000 of profit is defensible for many professions; setting it at $20,000 would not be, and is the fact pattern the IRS reclassifies. Note also that a lower salary reduces Social Security credits, which lowers your eventual benefit.