The usual claim is that you save 15.3% of everything you take as a distribution instead of salary. That ignores two real offsets. First, salary is deducted at the entity level, so it reduces your Section 199A qualified business income dollar for dollar — at a 24% marginal rate, each dollar moved out of salary costs you about 4.8 cents of deduction value against the 15.3 cents it saves. Second, a sole proprietor deducts half of self-employment tax above the line and an S corporation has no equivalent, so adjusted gross income usually rises. Both are in the numbers above.
S-corp tax savings calculator
Enter your profit and the salary you would pay yourself. We model both structures in full using 2026 federal figures and show you the net saving — after the qualified business income deduction you give up, and after what payroll and a corporate return actually cost.
Your numbers
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Profit for the year before paying yourself anything.
A starting point only — see the note on reasonable compensation below.
Likely worth itTax year 2026
$5,056
estimated saving per year
The election looks like it saves around $5,056 a year — comfortably more than the payroll and filing costs it creates. Confirm you can support the salary figure and that you are ready for the ongoing filings.
Federal income tax plus employment taxes, plus the added cost of running payroll and a corporate return.
Stay as you are$28,462
Income tax $11,506Self-employment tax $16,955
Elect S-corp$23,406
Income tax $13,682Payroll taxes $8,304Added costs $1,420
Where the saving actually comes from
- Employment tax you stop paying
- +$8,651
- Extra income tax, mostly from a smaller QBI deduction
- −$2,175
- Payroll service and the extra tax return
- −$1,420
- Net
- $5,056
Most calculators quote 15.3% of your distributions and stop there. They leave out that every dollar of salary also reduces your qualified business income deduction, and that your adjusted gross income moves. Both are included above.
In this model, the lowest total tax lands at a salary of $18,000
That is an observation about the arithmetic, not a recommendation. Reasonable compensation is a facts-based legal standard — what you would have to pay someone else to do your job. Setting salary to whatever minimizes tax is precisely the position the IRS challenges. There is no 60/40 rule, and no percentage safe harbor of any kind.
What an S election commits you to
Running payroll at least quarterly, filing Forms 941 and 940, issuing a W-2, filing a separate Form 1120-S every year, keeping the salary defensible, and — in some states — a separate state election plus entity-level tax. The election also locks in: revoking it generally bars re-electing for five years.
Ready to make it official?
Start my Form 2553Estimates use 2026 federal figures verified on July 30, 2026. They cover federal tax only and assume one owner-operator, no self-employed health insurance or retirement contributions, and no qualified property. State taxes are not included. This is self-help information, not tax advice.
Why most S-corp calculators overstate the saving
What the calculator assumes
- Federal tax only. State income tax, franchise tax and state payroll costs are not included — see our state-by-state guides for those.
- One owner-operator who materially participates in the business, taking the standard deduction.
- No self-employed health insurance premiums, retirement plan contributions, or qualified property. Each of those changes the answer, usually by reducing the benefit.
- Additional Medicare Tax thresholds of $200,000 single and $250,000 married filing jointly. These are fixed in statute and are never adjusted for inflation.
- Section 199A at 20%, which the One Big Beautiful Bill Act made permanent — the sunset that had been scheduled after 2025 was repealed.
Questions people ask
How much does an S-corp actually save?
It depends on your profit, the salary you pay yourself, and your other income. Below roughly $50,000 of profit the election usually costs more than it saves once payroll and a separate corporate return are counted. Between $80,000 and $250,000 of profit the savings are often a few thousand dollars a year. The calculator above gives you the figure for your own numbers.
Why is your number lower than other S-corp calculators?
Because most of them are wrong. They multiply your distributions by 15.3% and stop. What they leave out is that every dollar you pay yourself as salary reduces your Section 199A qualified business income dollar for dollar, taking about twenty cents off the deduction, and that your adjusted gross income changes because there is no longer a deduction for half of self-employment tax. Together those claw back roughly a third of the headline saving for most people below the QBI threshold.
What salary should I pay myself?
The IRS standard is reasonable compensation: what you would have to pay someone else to do the work you actually do. There is no percentage rule. The widely repeated 60/40 split has no statutory, regulatory, or case-law authority whatsoever, and relying on it is not a defense. Look at what your role pays in your market, write down how you arrived at the figure, and keep that note.
What is the Social Security wage base for 2026?
$184,500. Once your wages and net self-employment earnings reach that figure, the 12.4% Social Security portion stops applying and only the 2.9% Medicare portion continues. This matters a lot: if you already earn that much from another job, an S-corp election can save very little on payroll tax.
Does an S-corp still make sense at high income?
Often yes, and sometimes for a surprising reason. Above the Section 199A threshold — $201,750 of taxable income for a single filer in 2026 — the QBI deduction is limited by the W-2 wages the business pays. A sole proprietor pays none, so their deduction is squeezed toward zero, while an S corporation keeps up to 50% of the wages it pays. At that level, cutting your salary to minimize payroll tax can cost you more than it saves.
What does an S-corp cost to run each year?
Realistically $500 to $1,200 a year for a payroll service, and $400 to $1,500 more for a Form 1120-S than a Schedule C would have cost. Some states add a franchise tax or annual fee on top. Those figures are built into the calculator and you can change them.