Compare S-corp vs sole-proprietor self-employment tax.
Educational estimate using 2026 figures. Not tax advice.
A sole proprietor pays SE tax on all profit; an S-corp pays payroll tax only on a reasonable salary. The difference is your potential savings.
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As a sole proprietor, the 15.3% SE tax hits every dollar of profit. An S-corp splits income into a salary (which owes payroll tax) and distributions (which don’t). Only the salary is taxed for FICA, so the distribution rides free of the 15.3% — that gap is the savings.
The IRS requires a reasonable salary for your work — lowballing is an audit flag. And the election adds payroll filings, extra accounting and state fees, so it usually pays only once profit comfortably exceeds a reasonable salary (often ~$80k+).
Only your salary owes payroll tax; distributions above it skip the 15.3% SE/FICA tax.
A market wage for your role; the IRS scrutinizes artificially low pay.
Yes — payroll, extra filings and state fees offset some savings.
Often once profit comfortably exceeds a reasonable salary (~$80k+).
No — consult a CPA.