The comparison the calculator runs
As an LLC taxed as a sole proprietorship or partnership, your entire net profit is subject to self-employment tax. As an S corporation, only the salary you pay yourself through payroll is subject to Social Security and Medicare tax. The rest comes out as distributions, which are not subject to payroll tax.
The calculator computes:
- Self-employment tax on LLC profit: net profit x 92.35% (IRC §1402(a)(12)), then 12.4% Social Security up to the wage base and 2.9% Medicare on all of it.
- Payroll tax on the S-corp salary: 7.65% employee plus 7.65% employer on wages up to the wage base, 2.9% combined Medicare above it.
- The gross difference, minus your added annual costs.
The salary is the input that matters most. The IRS expects S-corp owners who work in the business to pay themselves reasonable compensation before taking distributions. Set it artificially low and the IRS can recharacterize distributions as wages, so the tool asks you to enter a salary you could defend with market pay data for your role.
2026 figures the calculator uses
- Social Security wage base for 2026: $184,500 (up from $176,100 for 2025)
- Self-employment tax rate: 15.3%, made up of 12.4% Social Security and 2.9% Medicare
- FICA on wages: 6.2% Social Security and 1.45% Medicare each for employee and employer
- Additional Medicare tax: 0.9% on wages or self-employment income above $200,000 (single), $250,000 (married filing jointly) or $125,000 (married filing separately)
The additional 0.9% applies in both structures once you are over the threshold, so it rarely changes the comparison much. The Social Security cap does. Once profit is well above $184,500, the LLC pays only 2.9% on the excess, which narrows the S-corp advantage at high incomes.
Worked example: $150,000 of profit and an $80,000 salary
Take a hypothetical consultant with $150,000 of net profit.
- LLC: $150,000 x 92.35% = $138,525 of net earnings. $138,525 x 15.3% = $21,194 of self-employment tax.
- S corp: $80,000 salary x 15.3% = $12,240 of combined FICA. The remaining profit, less the employer FICA, is distributed without payroll tax.
- Gross payroll tax savings: $21,194 minus $12,240 = $8,954.
Now subtract costs. Suppose (illustrative figures, not quotes) $1,200 a year for a payroll service and $1,500 more for the separate Form 1120-S and the extra bookkeeping it requires. Net savings before the QBI effect: $8,954 minus $2,700 = $6,254.
The QBI deduction and income tax can shrink the savings
The 20% qualified business income deduction under IRC §199A, made permanent by P.L. 119-21, applies to business profit after the owner's W-2 salary, and it can't exceed 20% of taxable income before the deduction. Paying yourself a salary moves income out of QBI, and the deduction for half of SE tax is replaced by a smaller deduction for employer FICA.
The calculator runs both versions through the 2026 single brackets and the $16,100 standard deduction (Rev. Proc. 2025-32). For the same $150,000 example with $2,700 of added costs:
| LLC | S corp | |
|---|---|---|
| Self-employment or payroll tax | $21,194 | $12,282 (FICA plus $42 FUTA) |
| Federal income tax | $16,413 | $19,672 |
| Added admin cost | none | $2,700 |
| Total | $37,608 | $34,654 |
The net saving is about $2,950 a year, roughly a third of the $8,954 headline payroll-tax figure. Specified service businesses above the §199A income thresholds may get little or no QBI deduction either way, which makes the S corp look better by comparison.
State taxes and what the calculator does not cover
Some states tax S corporations at the entity level. California, for example, charges S corporations 1.5% of California net income, with an $800 minimum franchise tax. Other states and some cities impose their own entity-level taxes. The calculator lets you enter a state entity tax, but it does not know every state's rules.
It also leaves out:
- State unemployment insurance and other payroll taxes on your salary
- Retirement plan effects (a solo 401(k) contribution is based on W-2 wages in an S corp)
- Health insurance treatment for more-than-2% shareholders
- Multiple owners, basis limits and losses
- The pass-through entity tax elections many states offer
We usually tell owners not to elect until steady profit is well above $100,000, and to run their own numbers with a salary they could defend.
What to do if the numbers work: Form 2553 timing
To be taxed as an S corporation for 2027, file Form 2553 no later than 2 months and 15 days after the start of the tax year, which for a calendar-year business is Monday, March 15, 2027. An LLC can elect directly on Form 2553 without filing Form 8832 first.
Once the election is in place, set up payroll before the first salary payment, file quarterly Form 941 and an annual W-2, and file Form 1120-S by March 15 each year (or extend it). Distributions should go out only after you have paid reasonable salary. This page gives estimates, not tax advice for your specific facts.
Frequently asked questions
How much can an S corp save in taxes?
The savings equal self-employment tax on your LLC profit minus payroll tax on your S-corp salary, less the added costs of payroll and a separate return. On $150,000 of profit with an $80,000 salary, gross payroll tax savings are about $8,954. After roughly $2,700 of added costs and about $3,260 of extra income tax from a smaller QBI deduction, the real benefit in that example falls to around $2,950.
At what income does an S corp make sense?
There is no fixed number. Once you count the smaller QBI deduction, the election usually pays off only when steady profit is well above $100,000 and a defensible salary is a modest share of it. Below that, payroll fees, the Form 1120-S and any state S-corp tax can eat the savings. Run the calculator with your own reasonable salary and costs.
LLC vs S corp: which pays less tax?
An S corp pays less payroll tax when your profit comfortably exceeds a reasonable salary, because distributions avoid the 15.3% self-employment tax. An LLC is simpler and cheaper to run and keeps the full QBI deduction on all profit. An LLC can also elect S-corp tax treatment, so the real choice is whether to make that election, not which entity to form.
What is the Social Security wage base for 2026?
The 2026 Social Security wage base is $184,500, up from $176,100 in 2025. The 12.4% Social Security portion of self-employment tax and FICA stops at that amount, while the 2.9% Medicare portion applies to all earnings. An additional 0.9% Medicare tax applies above $200,000 for single filers and $250,000 for married couples filing jointly.
When is the S corp election deadline for 2027?
For an existing calendar-year business that wants S-corp treatment for 2027, Form 2553 is due by March 15, 2027, which is 2 months and 15 days after January 1. A new entity has 2 months and 15 days from the date its first tax year begins. Late elections can sometimes be accepted with reasonable cause under IRS relief procedures.