S Corp Tax Calculator

The S corp itself usually pays no federal income tax; its profit passes to the owners' personal returns on Schedule K-1. What changes is payroll tax. With $200,000 of profit and a $100,000 salary, 2026 Social Security, Medicare and federal unemployment tax come to $15,342, against $28,234 of self-employment tax on the same profit as a sole proprietor or single-member LLC. Income tax is owed on the whole $200,000 either way.

An LLC can choose to be taxed as an S corp, so the comparison is between the two tax treatments. As a single-member LLC, the owner pays self-employment tax on 92.35% of all profit. Taxed as an S corp, payroll tax applies only to the owner's salary, and the rest comes out as distributions without it. Income tax is owed on the whole profit either way, so the saving is in payroll tax, less the cost of running payroll and filing Form 1120-S.

When the payroll tax it saves is more than what it costs to run. At a salary of half of profit, the saving is about 6.44% of profit, so every $1,000 a year of payroll service, Form 1120-S preparation and state fees needs roughly $15,500 of profit to cover it. Enter your own quotes in the extra costs field to see where your break-even falls.

What the business would pay someone else to do the owner's work, priced role by role from wage surveys for the occupation and area. The IRS sets no figure or percentage; it lists factors such as training, duties, time devoted and what comparable businesses pay. The salary section above gives the method, and S corp reasonable salary has the factors and the court case behind them.

Splits of profit between salary and distributions that circulate online. The IRS names no percentage. It asks what the business would pay someone else for the work the owner does, and S corp reasonable salary covers how to document that number.

It applies to shareholders who own more than 2% of the stock. Their fringe benefits, most often health insurance, go on the W-2 as wages instead of being tax-free, though premiums paid under a qualifying plan stay free of Social Security and Medicare. The steps and entries are in S corp owner health insurance.

Only if you pick a bracket under Advanced. The headline figure compares Social Security, Medicare and federal unemployment tax, which is where the S corp saving comes from. Income tax moves in both directions: the sole proprietor deducts half of self-employment tax, the S corp deducts its share of payroll tax and its running costs, and the salary does not count toward the 20% qualified business income deduction, so a higher salary shrinks it.

Owner payroll at a reasonable salary, distributions kept apart from wages, an accountable plan for reimbursements and shareholder basis tracked each year. S corp bookkeeping lists the accounts, and S corp election bookkeeping covers the switch from an LLC.