S-corp savings
vs sole proprietor
Calculate the annual SE tax you'd save by electing S-corp. Includes reasonable salary stress-test, S-corp overhead, and 5-year compounded value.
Run your S-corp election scenario
Side-by-side comparison
Salary reasonableness check
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SE tax vs FICA — the only real difference.
The full 15.3% self-employment tax (Social Security 12.4% + Medicare 2.9%) hits every dollar of net SE income for a sole proprietor or single-member LLC. After electing S-corp status, the same 15.3% only applies to the W-2 salary you pay yourself — the remainder flows through as a K-1 distribution that escapes payroll tax entirely.
The math in one line: SE tax on net SE − FICA on salary − S-corp overhead = annual savings.
Below the $184,500 Social Security wage base (2026), the savings are biggest. Above it, you keep the 2.9% Medicare savings (and 0.9% additional Medicare past $200k single / $250k MFJ) but the SS portion is already capped, so the dollar-for-dollar advantage shrinks.
Sweet spot: roughly $80k–$300k of net SE income. Below $50k the overhead eats the savings. Above $500k the W-2 salary alone tends to fill the SS base, and you're mainly chasing the Medicare delta.
Reasonable salary is the audit-risk variable. The IRS doesn't publish a number, but case law (Watson v. Commissioner, Glass Blocks, McAlary) and BLS comp data make 30–60% of net SE the defensible range for most owner-operators. Below 30% and you're inviting scrutiny — the IRS can reclassify K-1 distributions as wages plus penalties. The calculator flags this above.
Read the S-corp election guide for: Form 2553 deadlines (March 15 for current year, or within 2.5 months of formation), state-by-state S-corp tax oddities (CA $800 franchise minimum, NJ corporate business tax, IL replacement tax, NY MTA tax), and the QBI deduction interaction (your K-1 income still qualifies for QBI, but your W-2 wage doesn't — slightly tilts the math at high incomes).