Finance
S-Corp Tax Savings Calculator
Enter your net business profit and a reasonable salary to estimate the self-employment tax you'd save by electing S-corp status — paying FICA only on your salary instead of your whole profit.
Quick answer: An S-corp election saves self-employment tax by splitting profit into a reasonable W-2 salary (subject to 15.3% FICA) and distributions (not subject to SE tax). On $120,000 profit with a $60,000 salary, that's roughly $8,000 saved a year, minus payroll and filing costs.
How it works
1. Sole-prop pays SE tax on everything
As a sole proprietor or single-member LLC, all of your net profit is hit with 15.3% self-employment tax (on 92.35% of profit), on top of income tax.
2. An S-corp splits profit two ways
As an S-corp you pay yourself a W-2 salary (subject to 15.3% FICA) and take the rest as distributions, which are not subject to self-employment tax. Only the salary is hit with payroll tax.
3. Net the savings against costs
The savings is the SE tax you avoid on distributions, minus the extra cost of running payroll, filing a separate return, and any state S-corp fees — usually $1,000–$2,000 a year.
Frequently asked questions
When is an S-corp worth it?
Generally once net profit clears about $60,000–$80,000, where the self-employment tax saved on distributions outweighs the added payroll, accounting, and filing costs of running an S-corp.
What is a reasonable salary?
The IRS requires S-corp owner-employees to pay themselves a reasonable wage for the work they do before taking distributions. Setting it too low to dodge payroll tax is a common audit trigger; many owners land near 40–60% of profit.
Does an S-corp lower my income tax?
No — you still pay income tax on salary plus distributions. The savings is on self-employment/payroll tax, since distributions escape the 15.3% FICA that a sole proprietor pays on all profit.