LLC vs S-Corp Savings Calculator
Roughly what electing S-corp status could save you in self-employment tax — after the cost of running payroll. An estimate to take to a CPA, not a decision to make alone.
Your details
Rough figures are fine — you can refine later.
How we calculate this
We compare the payroll tax under each structure on the same net profit.
1. Sole-proprietor self-employment tax. Self-employment tax on your full net profit, using the CPA-reviewed engine (net earnings = 92.35% of profit; 12.4% Social Security up to the wage base + 2.9% Medicare).
2. S-corp FICA on salary. Full Social Security + Medicare (employer and employee halves) on your W-2 salary only. Wages are taxed directly — the 92.35% net-earnings factor is self-employment-only and does not apply here.
3. Gross savings. Sole-prop SE tax − S-corp salary FICA. The gap exists because distributions above your salary aren’t subject to FICA.
4. Net savings. Gross savings − the extra annual cost of running an S-corp (payroll + accounting).
All rates come from tax-constants.json. This is a simplified estimate that ignores state tax, the QBI interaction, and your specific facts.
Reviewer note: Reasonable-compensation is an IRS-scrutinized area. This tool and its logic are queued for line-by-line CPA/EA review and must not publish until signed off. It is an estimate, not tax advice.
Primary sources
- IRS — S Corporation Compensation and Medical Insurance Issues (reasonable compensation)
- IRS Instructions for Form 1120-S (S corporation returns)
- SSA 2026 Social Security wage base ($184,500)
Could an S-corp cut your self-employment tax?
Once a freelance business is consistently profitable, one question comes up again and again: should I elect S-corp status to save on self-employment tax? This calculator gives you a rough, honest estimate of the payroll-tax difference — after the real cost of running an S-corp — so you walk into a CPA conversation informed rather than guessing.
Enter your net profit, the reasonable salary you’d pay yourself, and the extra annual cost of payroll and accounting. The tool compares the self-employment tax you’d owe as a sole proprietor against the FICA an S-corp would owe on your salary, then nets out the added costs.
Where the savings actually come from
As a sole proprietor, your entire net profit is subject to 15.3% self-employment tax (Social Security up to the wage base, plus Medicare). An S-corp changes the shape of your income: you become an employee of your own company, pay yourself a W-2 salary, and take the rest as a distribution. The salary still carries full Social Security and Medicare tax — but the distribution does not. That FICA-free distribution is the entire savings mechanism. Nothing about your income tax changes; this is a payroll-tax strategy, full stop.
So if you net $120,000 and pay yourself a $60,000 salary, only the $60,000 carries payroll tax. The roughly $60,000 taken as distribution escapes the 15.3% — that gap, minus your salary’s FICA and your S-corp costs, is what you might save.
The catch that makes or breaks it: reasonable salary
You cannot simply pay yourself a tiny salary and take everything else as a distribution. The IRS requires an S-corp owner-employee to receive reasonable compensation for the work they actually do — roughly what you’d pay someone else for your job. Lowballing your salary to maximize FICA-free distributions is one of the most scrutinized moves in small-business tax, and the penalties for getting it wrong (reclassified wages, back taxes, interest) can wipe out the savings entirely.
A common starting range is 40–60% of net profit, but the defensible number depends on your role, hours, skill, and comparable market wages — which is exactly why this is a CPA decision, not a calculator decision.
When it tends to be worth it
Because an S-corp adds payroll, a separate tax return, and higher accounting fees — often $2,000–$3,000 a year or more — the payroll-tax savings have to clear those costs before you come out ahead. For many freelancers that break-even lands somewhere around $60,000–$80,000 of net profit, but it moves with your salary and your specific costs. Below it, the election can genuinely cost more than it saves.
What this is
A simplified estimate of the payroll-tax difference only — not tax advice and not a recommendation to elect. It ignores state taxes, the qualified business income deduction interaction, retirement-plan effects, and your specific reasonable-salary facts. This tool and its underlying logic are queued for line-by-line CPA/EA review and must not publish until signed off. Do not make the election on this number alone; take it to a qualified professional.
Common questions
How does an S-corp save on taxes? + −
As a sole proprietor, all of your net profit is subject to 15.3% self-employment tax. An S-corp splits your profit into a W-2 salary (which still pays full Social Security and Medicare tax) and distributions (which don’t). Only the salary carries payroll tax, so the distribution portion avoids the 15.3% — that difference is the savings. Income tax is unchanged; this is purely a payroll-tax strategy.
What is a “reasonable salary”? + −
The IRS requires an S-corp owner-employee to be paid reasonable compensation for the work they actually do — roughly what you’d have to pay someone else to do your job. Paying an artificially low salary to maximize FICA-free distributions is a well-known audit trigger with real penalties. A common starting range is 40–60% of net profit, but the right number depends on your role, industry, and hours, and should be set with a CPA.
When is an S-corp worth it? + −
Because an S-corp adds payroll, a separate tax return, and accounting costs (often $2,000–$3,000+ a year), the payroll-tax savings have to exceed those costs. That typically starts to happen somewhere around $60,000–$80,000 of net profit, but the break-even depends on your reasonable salary and your specific costs. This tool estimates your number; a CPA confirms it.
Is this calculator enough to decide? + −
No. This is a simplified estimate of the payroll-tax difference only. It doesn’t model state taxes, the qualified business income deduction interaction, retirement-plan effects, extra compliance burden, or your specific reasonable-salary determination. Treat the result as a conversation-starter for a qualified tax professional — not as tax advice or a recommendation to make the election.
Keep going
Prepared for tax year 2026. Every rate and cap on this page cites a primary IRS or SSA source. Estimates only — not tax or financial advice. — for planning purposes only, not tax, legal, or financial advice.