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.
The team behind these free tools builds custom calculators, utility tools, website design, ERP and CRM systems and custom software — plus content writing and research.