S-Corp vs LLC Tax Calculator: Which Saves You More? (2026)
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The short version (2026):
- An “S-corp” is a tax election, not a separate company. You keep your LLC and elect S-corp tax treatment with the IRS using Form 2553.
- The savings come from self-employment tax. An LLC owner pays 15.3% SE tax on 92.35% of net profit. An S-corp owner pays that 15.3% only on a reasonable salary; the rest is a distribution with no SE tax.
- It pays off at roughly $60,000–$80,000 in consistent net profit. Below that, payroll and extra filing costs usually eat the savings.
- Run your own numbers in the calculator below before you decide, then confirm with a CPA.
S-Corp vs LLC Tax Calculator (2026)
The bottom line: electing S-corp status can lower your self-employment tax, but it only pays off once your profit clears the cost of running payroll and filing a separate business return. For most one-owner businesses, that tipping point lands around $60,000 to $80,000 in net profit. Below it, the savings rarely cover the extra work. Above it, the gap can be worth real money every year.
Enter your net profit and a reasonable salary below. The calculator shows your estimated self-employment tax as an LLC, your payroll tax as an S-corp, and what you would actually keep after the added costs and any state-level S-corp tax.
S-Corp vs LLC Tax Savings Calculator (2026)
Enter your net profit and a reasonable salary to estimate how much the S-corp election could save you in self-employment / payroll tax, adjusted for your state.
Enter your numbers above to see your estimate.
How this works: An LLC owner pays 15.3% self-employment tax on 92.35% of net profit (12.4% Social Security up to the $184,500 wage base + 2.9% Medicare on the rest). An S-corp owner pays that 15.3% only on their salary; the rest is a distribution with no SE/payroll tax. State income tax is generally the same either way, so this tool only adjusts for states that tax S-corps differently (such as California and Illinois). The QBI deduction and the deductible half of SE tax can also move the number — this is an estimate, not tax advice. Confirm with a CPA before electing.
How the S-Corp Tax Advantage Actually Works
An LLC taxed the default way
A single-member LLC is taxed as a sole proprietorship, and a multi-member LLC is taxed as a partnership. Either way, all of your net business profit flows to your personal return, and you pay:
- Self-employment (SE) tax of 15.3% on 92.35% of net profit. That 15.3% is 12.4% for Social Security (up to the $184,500 wage base in 2026) plus 2.9% for Medicare on everything (IRS Topic 554).
- Federal income tax on the same profit, at your ordinary rate (10% to 37%).
- State income tax, where it applies (0% to about 13.3%).
The 92.35% step matters, and a lot of online calculators skip it. You apply SE tax to your net profit after multiplying it by 0.9235, not to the full amount. You also deduct half of the SE tax on your income tax return, which softens the hit.
Worked example, $120,000 net profit as an LLC: SE tax is $120,000 × 92.35% × 15.3% = $16,955. (You then deduct $8,478 of that against income tax.)
The same LLC after an S-corp election
Once you elect S-corp treatment, you become both an owner and an employee of your own business. You pay yourself a reasonable salary through payroll, and only that salary carries the 15.3% in Social Security and Medicare tax. Whatever profit is left after your salary comes to you as a distribution, with no SE or payroll tax on it.
Same $120,000, now as an S-corp with a $60,000 salary: payroll tax is $60,000 × 15.3% = $9,180. The other $60,000 is a distribution taxed for income tax only. Your payroll-tax savings come to $16,955 minus $9,180, or about $7,775 before costs.
That is the whole engine. The catch is everything you have to do to run payroll and keep the election clean, which is where the costs come in.
S-Corp vs LLC: The Numbers by Income Level
Here is how the payroll-tax math plays out across income levels, using a defensible example salary and about $1,200 a year in added payroll and tax-prep costs. The “net after costs” column is what you would actually keep.
| Net profit | Example salary | LLC SE tax | S-corp payroll tax | Gross savings | Net after ~$1,200 costs | Worth it? |
|---|---|---|---|---|---|---|
| $40,000 | $25,000 | $5,652 | $3,825 | $1,827 | ~$627 | Usually no |
| $60,000 | $35,000 | $8,478 | $5,355 | $3,123 | ~$1,923 | Break-even zone |
| $80,000 | $45,000 | $11,304 | $6,885 | $4,419 | ~$3,219 | Worth considering |
| $100,000 | $55,000 | $14,130 | $8,415 | $5,715 | ~$4,515 | Clear savings |
| $120,000 | $60,000 | $16,955 | $9,180 | $7,775 | ~$6,575 | Strong savings |
| $150,000 | $75,000 | $21,194 | $11,475 | $9,719 | ~$8,519 | Strong savings |
| $200,000 | $100,000 | $28,234 | $15,300 | $12,934 | ~$11,734 | Substantial |
Two things to read into this table. First, the savings climb with profit, because more profit can move from salary into distributions. Second, your salary choice drives the result: a higher salary means more payroll tax and a smaller gap. Above the $184,500 Social Security wage base, only the 2.9% Medicare portion keeps applying, so the curve flattens at the top. Model your own profit and salary in the calculator above to see your real figure.
One more wrinkle for higher earners. Wages and SE income above $200,000 (single) or $250,000 (married filing jointly) carry an extra 0.9% Additional Medicare Tax. It applies to SE income for an LLC and to wages for an S-corp, so it rarely changes the comparison by much, but it is real.
The Hidden Costs of an S-Corp
Before you get attached to that savings number, subtract what an S-corp costs to run. These are the expenses a default LLC does not have:
| Cost | Typical annual amount | Notes |
|---|---|---|
| Payroll service | $500–$1,500 | Gusto, ADP, or your accountant; runs your salary and files payroll taxes |
| S-corp tax return (Form 1120-S) | $500–$1,500 | A separate return, more involved than a Schedule C |
| Extra bookkeeping | $0–$1,000 | S-corps need cleaner books to separate salary from distributions |
| State payroll accounts | $0–$500 | Unemployment insurance and, in most states, workers’ comp once you are an employee |
For a one-owner business that handles its own bookkeeping, the realistic added cost is often $800 to $1,500 a year. A full-service accountant doing everything can push it past $2,000. The calculator lets you pick the level that fits you.
The rule of thumb: an S-corp election starts to make financial sense at roughly $60,000 to $80,000 in consistent annual net profit. The word that earns its place there is “consistent.” One strong year followed by a lean one makes the election far less attractive, because the costs are fixed but the savings are not.
Not sure you want to run payroll and a second return yourself? Doola handles formation, bookkeeping, and business tax filing so the compliance side stays off your plate.
When an S-Corp Election Makes Sense
Good candidates
- Established businesses with net profit consistently above about $80,000.
- Service professionals (consultants, agencies, trades, licensed pros) whose income comes mostly from their own work.
- Owners with predictable income, so a reasonable salary can be set with confidence.
- Businesses that already pay for an accountant, since the added cost of the S-corp return is smaller.
Poor candidates
- New or low-profit businesses (under about $60,000), where costs outrun savings.
- Real estate investors, because rental income is generally not subject to SE tax in the first place.
- Businesses planning to raise outside investment, given the S-corp limits below.
- Owners who are not U.S. citizens or residents, who cannot be S-corp shareholders.
If you are still operating as a sole proprietor, the entity decision comes first. Our sole proprietorship vs LLC guide walks through that step, and the LLC formation cost calculator shows what setting up the LLC runs in your state.
How to Elect S-Corp Status
Step 1: Have an LLC in place
You do not create a separate S-corp entity. You form an LLC, then elect S-corp tax treatment. Your legal structure stays an LLC; only the tax treatment changes. If you still need to form one, start with our guide on how to form an LLC online.
Step 2: File IRS Form 2553
The election runs on Form 2553, signed by all owners. The deadline is no more than 2 months and 15 days after the start of the tax year the election should take effect. For an existing calendar-year LLC electing for 2026, that means by March 15, 2026. A newly formed business counts from when its tax year begins. Miss the window and you may still qualify for late-election relief under Rev. Proc. 2013-30 with a reasonable-cause explanation. Our step-by-step Form 2553 guide covers the filing.
Step 3: Set up payroll
Before you take a single distribution, get payroll running. You will need your EIN, state employer accounts for withholding and unemployment, and a payroll service to issue paychecks and file the quarterly Form 941.
Step 4: Pay a reasonable salary, then take distributions
Run regular payroll at your reasonable salary, with Social Security, Medicare, and income tax withheld. After that, remaining profit can come to you as a distribution, reported on your Schedule K-1 and taxed for income tax only. Keep paying your quarterly estimated taxes on the income-tax side so you are not caught short in April.
“Reasonable Salary” Is the Part the IRS Watches
The IRS requires an S-corp owner-employee to take a reasonable salary for the work they do before paying out distributions. Set it too low to dodge payroll tax and the IRS can reclassify your distributions as wages, then add back the employment tax plus penalties and interest. The employer share is not deductible in that scenario, so the bill can wipe out years of savings.
There is no fixed formula. The IRS looks at your training and experience, your duties, the time you put in, what you pay other employees, and comparable pay for similar work. A practical starting point many owners use is 40% to 60% of profit, set against real market pay for the role, then documented.
| Net profit | Rule-of-thumb salary range | Salary as % of profit |
|---|---|---|
| $60,000 | $35,000–$45,000 | 58–75% |
| $80,000 | $40,000–$55,000 | 50–69% |
| $100,000 | $50,000–$65,000 | 50–65% |
| $150,000 | $65,000–$90,000 | 43–60% |
| $200,000 | $80,000–$120,000 | 40–60% |
Notice the percentage falls as profit rises. At $60,000, a $20,000 salary is hard to defend. At $200,000, an $90,000 salary can be reasonable depending on your role and field. These are rules of thumb, not IRS rules, so keep notes on how you landed on your number.
S-Corp Limits Worth Knowing First
| Restriction | What it means |
|---|---|
| Up to 100 shareholders | Fine for almost any small business, a problem only at scale |
| U.S. citizens or residents only | No foreign owners, and most trusts and entities cannot hold shares |
| One class of stock | No preferred shares, which most investors expect |
| Pro-rata distributions | Profit must be split by ownership percentage, with no special allocations |
| Calendar tax year | Standard for owner-operated businesses; exceptions are narrow |
Don’t Forget the QBI Deduction
Both LLCs and S-corps can claim the Section 199A qualified business income (QBI) deduction, worth up to 20% of qualified business income. The 2025 tax law (the One Big Beautiful Bill Act) made this deduction permanent, so it is not sunsetting.
The interaction matters when you compare the two. For an LLC, your full net profit (less the deductions) counts as QBI. For an S-corp, only the distribution portion is QBI, because your W-2 salary is not. So electing S-corp can shrink your QBI deduction, which trims part of the SE-tax savings. For 2026, the income limits where the rules tighten begin at $201,775 (single) and $403,500 (married filing jointly) per IRS guidance on Section 199A. Above those, “specified service” businesses such as consulting, law, accounting, and health begin to phase out of the deduction entirely.
The takeaway: the payroll-tax savings in the calculator are the headline, but your real benefit is a little lower once the QBI math and the deductible half of SE tax are folded in. A CPA can run both sides for your exact situation.
State Taxes Can Change the Math
Formation and report fees differ by state too; the current numbers for all 50 states are in our verified LLC filing fees by state table.
Most states treat an S-corp as a pass-through, so your state income tax is the same whether you stay a default LLC or elect S-corp status. A handful of states are the exception, and they can eat into your federal savings:
- California charges S-corps a 1.5% franchise tax on net income (minimum $800). An LLC pays the $800 plus a gross-receipts fee instead, so the gap depends on your revenue, but for many profitable businesses the 1.5% trims the benefit.
- Illinois adds a 1.5% Personal Property Replacement Tax on S-corp income. A single-member LLC does not pay it, so it is a real new cost when you elect.
- New York City taxes S-corps at 8.85% (General Corporation Tax) but LLCs at 4% (Unincorporated Business Tax), so electing S-corp usually costs more there.
- Washington, D.C., New Hampshire, Tennessee, and Texas tax businesses at the entity level whether you are an LLC or an S-corp, so the election does not move your state bill much.
One bright spot for 2026: Louisiana now recognizes the federal S-corp election and no longer applies its franchise tax to S-corps. The calculator above adjusts for the states with their own S-corp tax. If yours is not on that list, confirm how it treats S-corps with your state’s department of revenue or a local CPA before you rely on the number.
Frequently Asked Questions
At what income does an S-corp actually save money?
For most one-owner businesses, the election starts paying off around $60,000 to $80,000 in consistent net profit. That is the range where the self-employment tax savings begin to clear the cost of payroll, a separate 1120-S return, and the extra bookkeeping. Below it, the costs usually win.
How is the S-corp tax savings calculated?
Compare two numbers. As an LLC, your SE tax is net profit times 92.35% times 15.3%. As an S-corp, your payroll tax is your salary times 15.3% (Social Security caps at the $184,500 wage base; Medicare does not). The difference, minus your added S-corp costs, is your estimated savings. The calculator on this page does the full math.
What counts as a “reasonable salary”?
It is fair pay for the work you do, judged against comparable roles, your duties, and the time you put in. The IRS has no fixed formula, but it can reclassify distributions as wages if your salary is unreasonably low. Many owners land between 40% and 60% of profit and document how they got there.
Does an S-corp lower my income tax too?
Mostly no. The savings are on self-employment and payroll tax, not income tax. Both an LLC and an S-corp are pass-throughs, so your profit is taxed at your personal rate either way. The QBI deduction can even shrink under an S-corp, so treat the calculator’s figure as a payroll-tax estimate.
Do I need a new EIN to elect S-corp status?
No. If you keep the same LLC and only change the tax treatment, your EIN stays the same. You would need a new one only if you formed a completely new entity.
Can I switch back from S-corp to LLC tax treatment?
Yes, by revoking the election with IRS consent. Once you revoke, though, you generally cannot re-elect S-corp status for five years. It is not something to flip on and off with each year’s income.
When is the Form 2553 deadline?
No more than 2 months and 15 days after the start of the tax year the election should cover, which is March 15 for an existing calendar-year business electing for the current year. Miss it and you may still qualify for late-election relief under Rev. Proc. 2013-30 with reasonable cause.
Ready to run the numbers for real? Use the calculator above, then read our step-by-step Form 2553 guide, or let Doola handle the bookkeeping and business taxes once you elect.
Sources & References
This guide is fact-checked against the following official and authoritative sources:
- IRS — Self-Employment Tax (Topic No. 554)
- IRS — S Corporation Compensation and Medical Insurance Issues
- IRS — S Corporations
- SSA — Contribution and Benefit Base (2026 wage base)
- IRS — Qualified Business Income Deduction (Section 199A)
Fact-checked: July 2026 · ClearLegalTips editorial team. This is legal information, not legal advice.
ClearLegalTips is an independent publisher of plain-English legal guides, free document templates, and cost calculators for common U.S. legal tasks. Every article is reviewed by founder and editor Fatih Öztürk and fact-checked against official sources: statutes, court fee schedules, and government filing pages. Not a law firm; nothing here is legal advice.
