Compare S-corp and sole proprietor self-employment tax side by side. Enter net business income and a proposed salary to see the estimated SE tax savings.
Educational estimate using 2026 thresholds. Not tax advice.
As a sole proprietor, self-employment tax applies to all net profit. As an S-corp, payroll tax (FICA) applies only to a reasonable salary; distributions above that salary avoid SE tax entirely. The gap between those two amounts is the potential savings this tool estimates.
Calculate your QBI deduction, check eligibility, or estimate self-employment tax as a sole proprietor or 1099 contractor.
As a sole proprietor, the 15.3 percent self-employment tax applies to every dollar of net profit. An S-corp splits income into two categories: a salary (which owes FICA payroll tax normally) and distributions above that (which owe no Social Security or Medicare tax). Only the salary runs through FICA. Distributions skip it. The savings scale with how large the distribution can be relative to a defensible salary.
Business nets $120,000. Salary set at $60,000. A sole proprietor owes roughly $16,955 in SE tax on the full amount. The S-corp owes payroll tax only on the $60,000 salary, about $9,180. Estimated SE tax savings: around $7,775 before accounting for added operating costs. The remaining $60,000 comes out as a distribution, clear of SE tax. Regular income tax still applies to the full $120,000.
Paying yourself a token salary and taking most income as distributions does not work. The IRS requires a reasonable wage for the work you actually perform, and artificially low salaries are a well-known audit trigger. Research what the role would pay at arm’s length and document your reasoning.
As an S-corp owner-employee, only the salary you pay yourself is subject to payroll (FICA) tax. Distributions above that salary avoid the 15.3 percent SE tax entirely. The savings grow with the size of the distribution relative to the salary.
A wage comparable to what the role would pay at arm’s length. The IRS scrutinizes artificially low salaries.
Yes. Payroll processing, Form 1120-S preparation, quarterly payroll returns, and state fees add up. Estimate these costs before deciding. For most owners the numbers favor an S-corp above roughly $80,000 to $100,000 of net profit, but that crossover shifts based on state taxes and accounting fees.
Often once net profit comfortably exceeds a reasonable salary. $80,000 to $100,000 of net profit is a commonly cited starting point, but the actual crossover depends on your state, your accounting costs, and what a defensible salary looks like for your role. A CPA can model the specific numbers for you.
No - it’s an estimate. Consult a CPA before electing S-corp status.