S-corp election analyzer (2026)
As a sole proprietor you pay self-employment tax on 92.35% of your net profit: 12.4%for Social Security up to the $184,500 wage base, plus 2.9% Medicare on everything.4 Elect S-corp status and that changes: you pay yourself a W-2 salary, FICA applies to the salary only, and the rest of the profit comes out as distributions with no payroll tax. The free estimate shows what you'd save after the added costs of payroll, the extra tax return, and state fees, with a plain verdict on whether the election is worth it. The $49 report adds the line-by-line math, your break-even income, a defensible salary, and the filing steps.
The tax math is the same for each. Multi-member LLCs and partnerships get a note on the extra steps
Profit after expenses, before taxes
Suggested $60,000. Leave blank to use it
State S-corp taxes and fees go into the added costs
Estimated net saving per year
Tax year 2026Likely worth it at this income
Your payroll-tax saving minus an estimated $2,000 a year in added costs.
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The added costs are a payroll service and the extra S-corp tax return. Texas adds no state S-corp cost at this income.
One-time payment. The line-by-line tax table, every added cost for your state, your break-even income, a defensible salary, and the filing steps.
Your numbers stay in your browser. If you buy the report, they are saved with your payment so it opens on any device.
Figures from IRS Rev. Proc. 2025-32 and the SSA wage base.
In this article
How the S-corp saves on payroll tax
Today, every dollar of net profit (times the 92.35% factor) is hit with the 15.3%self-employment tax. As an S-corp owner-employee, only your salary faces payroll tax:7.65% as the employee and 7.65% as the employer. That is the same 15.3% total, applied to a smaller base. The gap between the two is the saving.
What to enter
Start with net business income: revenue minus deductible expenses, the number that would land on Schedule C. Then set the W-2 salary you would pay yourself, or leave it blank and the analyzer suggests 60% of net income. Your state matters because a few states add their own S-corp taxes and fees, and those go into the added costs. Business structure doesn't change the tax math. It adds a note on the extra steps for multi-member LLCs and partnerships.
What you'll see
The free estimate shows your net saving per year after the estimated added costs, a one-line verdict (likely worth it, close call, or not worth it), and four rows: payroll tax today, payroll tax as an S-corp, the added costs, and the net saving. The full $49 report adds the line-by-line payroll tax table, each added cost with the notes for your state, your break-even income, the reasoning behind the verdict, reasonable-salary guidance, and the next steps for filing Form 2553.
2026 figures behind the math
| Payroll tax element | 2026 figure |
|---|---|
| Social Security wage base | $184,500 |
| Social Security rate | 12.4% |
| Medicare rate | 2.9% |
| Additional Medicare threshold (single) | $200,000 |
| Additional Medicare threshold (joint) | $250,000 |
| Additional Medicare rate | 0.9% |
| SE tax base factor | 92.35% of net profit |
Reasonable salary: the part people get wrong
The IRS requires S-corp officers to receive "reasonable compensation" for the work they perform, reported on Form W-2.3 There is no safe-harbor percentage. Paying yourself nothing while taking large distributions is the fact pattern the IRS challenges, and courts have reclassified distributions as wages (plus penalties) when the salary was indefensibly low.
The analyzer suggests 60% of net income as a starting point, floored at $30,000 when income supports it. Treat it as a draft: compare it against what you would pay a non-owner to do your job, document the reasoning, and adjust as income changes. A CPA who knows your industry is the right person to bless the final number.
What the election costs to run
Three costs offset the payroll-tax saving every year: a payroll service to run wages and filings (about $800 a year), the extra tax return (Form 1120-S instead of Schedule C, which typically adds about $1,200 in preparation fees), and state charges. California is the outlier: a 1.5% tax on S-corp net income plus an $800 minimum franchise tax.6
Form 2553 deadlines
File Form 2553 to make the election.2 For it to take effect in the current tax year, the IRS must receive it by March 15, or within 75 days of formation for a new entity. Miss it and the election starts the following year, though late-election relief under Rev. Proc. 2013-30 can sometimes repair a missed deadline. Payroll must be running before the first wage payment; wages cannot be backdated.
Worked example: $120,000 of net profit, single filer
| Self-employment tax today | $16,955.46 |
| Suggested salary ($72,000) | $72,000.00 |
| FICA on that salary | $11,016.00 |
| Payroll-tax savings | $5,939.46 |
| Added costs (payroll + 1120-S) | $2,000.00 |
| Net annual saving | $3,939 |
At $45,000 of net profit the same math leaves only $227 after costs. That is why the recommendation flips to no below about $40,000.
Solvent self-employment tax calculator
See what you pay in payroll tax today
About the author
Nicolas Straut
Personal and business finance writer, former Forbes contributor
Nicolas Straut writes about self-employment and quarterly tax, LLC formation and costs, and tax software for Solvent. He has written about money for about ten years, including for the fintech companies NorthOne and Fundera. He files his own taxes as a freelancer. He isn't a CPA or an enrolled agent (EA).
More articles by Nicolas Straut →Frequently asked questions about the S-corp election
How much money do you need to make for an S-corp to be worth it?
For a single filer in a state that adds no S-corp charge, such as Texas, the S election starts paying for itself at about $40,000 of net business income, once you subtract the payroll service and the extra tax return from the payroll-tax savings. Below that, the added costs eat the whole saving. Run your own numbers above, because the break-even point moves with your state and the salary you take.
What is a reasonable salary for an S-corp owner?
The IRS requires S-corp owners to take "reasonable compensation" as W-2 wages before distributions, but it publishes no formula. Courts look at your duties, hours, and what comparable employees earn. The $0-salary-with-big-distributions setup is the classic audit trigger. Document why your salary is reasonable for the work you do.
How do I elect S-corp status?
File Form 2553 with the IRS. For the election to cover the current tax year, the IRS must receive it by March 15 (or within 75 days of formation for a new entity). Miss the deadline and the election takes effect the following year, though late-election relief under Rev. Proc. 2013-30 sometimes fixes it.
Does an S-corp save on self-employment tax?
An S-corp does not pay self-employment tax at all. Instead the owner-employee pays FICA on their W-2 salary (12.4% Social Security up to the $184,500 wage base, 2.9% Medicare), and distributions escape payroll tax entirely. The savings are the SE tax you stop paying minus the FICA on the salary minus the costs of payroll and the 1120-S return.
Is an S-corp worth it in California?
California makes the math harder: S-corps pay a 1.5% tax on net income plus an $800 minimum franchise tax every year. That comes straight out of the payroll-tax savings, so the break-even income is higher in California than in most states. The free estimate above includes both charges in the added costs.
Can a single-member LLC elect S-corp status?
Yes. A single-member LLC is disregarded for federal tax purposes by default, meaning it is taxed like a sole proprietorship. Filing Form 2553 elects to have it taxed as an S corporation instead. You keep the LLC legal structure and change only the tax treatment.
Sources
- https://www.irs.gov/businesses/small-businesses-self-employed/s-corporations
- https://www.irs.gov/instructions/i2553
- https://www.irs.gov/newsroom/wage-compensation-for-s-corporation-officers
- https://www.ssa.gov/news/en/cola/factsheets/2026.html
- https://www.irs.gov/taxtopics/tc560
- https://www.ftb.ca.gov/file/business/types/s-corporation/index.html