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S-Corp Savings Calculator

Compare S-corp vs sole-proprietor self-employment tax.

Your Numbers

Results

Estimated SE/payroll tax savings,
Sole-prop SE tax,
S-corp payroll tax,
Salary (taxed),
Distribution (no SE tax),

Compares two structures on paper; it doesn't file anything for you.

Priya Raman
By Priya Raman, focuses on small-business entity choices
Reviewed July 2026

Sole Proprietor Or S-Corp: What Changes

An S-corp election doesn't lower your tax rate. It changes which slice of business profit touches the 15.3% Social Security and Medicare tax in the first place, by splitting income into a salary that runs through payroll and a distribution that doesn't. This tool compares the two structures side by side on the same profit number so you can see the gap in dollars rather than percentages.

A reasonable salary is required. Setting it artificially low to dodge payroll tax is exactly what invites an IRS audit.

Where The 15.3% Gap Comes From

As a sole proprietor, self-employment tax applies to every dollar of profit: 12.4% for Social Security up to the annual wage base, plus 2.9% for Medicare with no ceiling. An S-corp instead pays payroll tax on the salary portion only. The distribution above that salary clears the 15.3% entirely. That gap, multiplied across the distribution amount, is where the savings shown above come from. The Social Security cap cited above is the same one built into every calculator on this site.

Things to Know About the Reasonable-Salary Rule

Form 1120-S instructions and general IRS guidance on officer compensation both point the same direction: the salary has to reflect what the work is actually worth, not the smallest number that keeps distributions large. Auditors compare officer pay against industry norms for similar roles. The election also adds a separate business return, a K-1, and often a payroll provider, so it tends to pay off only once profit clears a reasonable salary by a wide enough margin to justify the extra paperwork.

Entity choice

S-Corp FAQs

Does this include the cost of running payroll?

No. Payroll software, a registered agent in some states, and extra accounting for Form 1120-S all cost money that this comparison doesn't subtract. Weigh those costs against the savings shown here.

What profit level makes an S-corp worth it?

There's no fixed line, but many advisors start looking at it once profit comfortably clears a reasonable salary for the work, often somewhere around $80,000, because that's where the distribution portion becomes large enough to matter.

Do I need a separate tax return for an S-corp?

Yes. An S-corp files Form 1120-S and issues you a Schedule K-1, which then flows onto your personal Form 1040. A sole proprietor just attaches Schedule C.

Does the salary I choose affect Social Security benefits later?

Yes. Only wages subject to Social Security tax count toward your future benefit calculation. Distributions from an S-corp don't add to that earnings record, even though they were part of your income this year.

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