Business · Live
Would an S-Corp
actually save you money?
Compare your real self-employment tax as a sole prop against S-Corp payroll tax plus the real overhead costs — tax prep, payroll filing, state fees — that competitor tools often leave out, with your actual computed break-even point.
This is a planning estimate you set — not an IRS formula. There's no fixed percentage rule; reasonable compensation depends on comparable market wages for the actual work performed.
Check your own state — many states charge S-Corp-specific fees or franchise taxes beyond the federal picture this tool models.
$3,479.55
in annual SE/payroll-tax savings, net of S-Corp overhead and state fees, at your current inputs.
Break-even profit
$46,299.51
at your current salary %, overhead, and state fee settings
Side-by-side comparison
Income tax is identical either way and isn't shown here — S-Corp election only changes the SE/payroll-tax portion, never your income tax bill. Distributions are still ordinary taxable income.
Setting salary artificially low specifically to minimize SE tax is a documented audit trigger — the IRS uses a facts-and-circumstances test (comparable wages, training, time devoted), not a fixed percentage. Treat this calculator as a planning estimate, not a wage-comparability determination.
How it works
S-Corp status changes one tax, not your whole tax bill.
A lot of "S-Corp saves you thousands!" content skips the part where it explains exactly what gets saved. It's specifically self-employment tax — the 15.3% that a sole proprietor pays on their full net profit. S-Corp status doesn't touch federal income tax at all: whether your profit shows up as sole-prop income or as S-Corp salary plus distributions, the same total amount gets taxed as ordinary income either way. The entire benefit, if there is one, comes from shrinking how much of your profit counts as "wages" subject to that 15.3%.
The mechanism
A sole proprietor (or single-member LLC, taxed the same way by default) pays SE tax on 92.35% of their net profit — the full 15.3% combined rate, Social Security capped at the annual wage base, Medicare uncapped. An S-Corp owner instead pays themselves a W-2 "reasonable salary," which is subject to standard payroll FICA at the same 15.3% combined rate — but only on the salary portion, not the full profit. The rest becomes a distribution, which owes ordinary income tax but no SE/payroll tax at all.
S-Corp: payroll tax = 15.3% × salary only, + overhead + state fees
The myth that gets people in trouble
Search for "S-Corp salary split" and you'll find the "60/40" or "40/60" rule cited as if it were IRS policy. It isn't. The IRS has no fixed percentage for reasonable compensation — it looks at what an unrelated employer would pay for the same work: your training, the time you actually devote to the business, what comparable roles pay, and how consistently you apply your method. Setting salary artificially low specifically to shrink your SE tax bill, with no real basis in what the work is worth, is a documented audit trigger — the IRS can and does reclassify distributions as wages after the fact, with back taxes and penalties. Use the percentage in this calculator as a planning estimate, not a target to game.
The costs that eat into the savings
S-Corp status isn't free to maintain. A separate corporate return (Form 1120-S) typically costs $800–2,500 more per year than a Schedule C filing. Running real payroll — even for just yourself — means payroll processing and filing costs, commonly $480–1,800 per year. Some states add their own S-Corp-specific costs on top: California's franchise tax, for example, is the greater of $800 or 1.5% of net income, which can meaningfully outpace a flat-$800 assumption at real profit levels.
A worked example
A single-member business with $100,000 in net profit, a 50% reasonable-salary split, $3,000 in annual S-Corp overhead, and no state fee: as a sole prop, SE tax on the full $100,000 comes to $14,129.55. As an S-Corp, payroll tax on the $50,000 salary comes to $7,650, plus $3,000 overhead — a total S-Corp cost of $10,650. Net savings: $3,479.55 per year. At the same salary split and overhead, this profile's actual break-even point is $46,299.51 — below that, the S-Corp costs more than it saves. Add California's franchise tax (1.5% of $100,000 = $1,500, since that exceeds the $800 minimum) and the net savings drops to $1,979.55 — still positive, but a meaningfully smaller number than the federal-only picture.
The QBI deduction: a second, separate consideration
This calculator optimizes one thing — SE/payroll tax — and its "lower salary is better" framing holds cleanly below the QBI deduction's income threshold. Above that threshold it gets more complicated: your S-Corp salary is never QBI (only K-1 pass-through profit is), but that same salary is also what sets the ceiling on the QBI deduction's wage limitation. A salary trimmed purely to minimize SE tax can shrink that ceiling and cost you QBI deduction, partly offsetting the SE-tax savings shown here. Run your numbers through the QBI (Section 199A) Deduction Calculator too before settling on a salary if your income is in that range.
Disclaimer
This calculator provides an educational estimate and does not replace advice from a licensed CPA or tax attorney, particularly around what salary is genuinely "reasonable" for your specific work — that determination depends on facts this tool doesn't know about you. It does not model federal income tax (identical either way, so it cancels out of the savings comparison), state income tax, the Qualified Business Income deduction (see above), or every state's S-Corp fee structure beyond the California preset.
Self-employment tax, payroll FICA, reasonable-compensation standards, and California's franchise tax figures are checked directly against IRS and California FTB guidance and updated when those figures change. Rates, thresholds, and formulas are checked against the IRS's S-Corp compensation guidance and updated when the underlying rules change.