Step 1 — Net Business Profit
Expected Annual Net Profit
Before any owner compensation — your business's net income for the year

Enter your business's net profit before paying yourself. This is typically your Schedule C net profit. Do not include personal salary here — the slider below handles that.

Step 2 — Reasonable Salary Percentage
Reasonable Salary as % of Net Profit
The IRS requires S-Corp owner-employees to pay themselves a reasonable market salary
50%
of net profit
$60,000
annual W-2 salary
30% (min) 100% (all profit as salary)
IRS Guidance: The IRS requires S-Corp owner-employees to receive reasonable compensation for services rendered. Setting salary too low is a major audit red flag. Many CPAs suggest 40–60% for service-based businesses.
Social Security wage base cap applied.

Estimated Annual FICA Tax Savings

$0

saved annually by choosing S-Corp vs. Sole Proprietorship

$0/month saved FICA tax only 2.9% Medicare unlimited
Sole Prop / LLC
Single-Member LLC
Total FICA / SE Tax
$—
Taxable SE Earnings—
SS Tax (12.4%)—
Medicare Tax (2.9%)—
Self-Emp. Deduction—
S-Corporation
S-Corp Election
Total FICA Tax (Employer + Employee)
$—
W-2 Salary—
Owner Distribution—
FICA on Salary Only—
Distribution FICA$0 ✓
Full S-Corp Tax Breakdown
Detailed comparison of how each dollar flows — 2025 IRS rates applied
Net Business Profit—
S-Corp W-2 Salary 50% —
Owner Distribution (FICA-free)—
SS Tax on Salary (12.4% × employer + employee)—
Medicare Tax on Salary (2.9%)—
S-Corp Total FICA—
Sole Prop / LLC Total SE Tax—
Your Estimated FICA Savings —

FICA Tax Comparison: LLC vs. S-Corp

Visual breakdown of where each dollar of FICA tax goes — amounts in USD

⚠ Disclaimer: This tool provides an estimate of FICA tax savings only and does not account for federal/state income taxes, QBI deductions, or state-specific S-Corp fees. Not legal or tax advice. Consult a CPA.

Quick Start

How to Use This S-Corp Tax Calculator

This calculator estimates how much you could save in self-employment tax by electing S-Corp status, and models a defensible salary split. Enter your net profit, set your salary percentage, and the tool compares your FICA burden as a sole proprietor against an S-Corp. Here is how each control works.

Start with your Expected Annual Net Profit — your total business revenue minus deductible business expenses, before any owner compensation. This is the figure the calculator splits between salary and distribution. Use a realistic full-year projection; the S-Corp advantage scales with profit, so an accurate number gives you an accurate savings estimate.
The slider sets what portion of your net profit you pay yourself as a W-2 salary. Many tax professionals use 40–60% as a starting benchmark for a one-person service business. As you drag it, the FICA comparison updates in real time: a lower salary means lower FICA, but too low a salary is a leading S-Corp audit trigger. The goal is a number that is both defensible and tax-efficient.
Your income is divided into two buckets. The W-2 Salary is subject to the full 15.3% FICA (Social Security + Medicare) tax, just like an employee’s wages. The Owner Distribution is the remaining profit, which passes to you free of FICA tax. Every dollar shifted from salary to distribution saves 15.3% in FICA — but only the salary portion can be lowered, and only within reason. That trade-off is the entire S-Corp strategy in one line.
The charts compare your total FICA / SE tax as a sole proprietor against the S-Corp scenario at your chosen salary, and show your estimated annual savings. Adjust the profit or the salary slider to instantly re-run the comparison and find the balance that maximizes savings while keeping your salary reasonable.
S-Corp for Solopreneurs

Frequently Asked Questions

If the IRS audits and decides your salary was unreasonably low, it can reclassify part or all of your distributions as wages. You would then owe the back FICA / payroll taxes on the reclassified amount, plus penalties and interest. In Watson v. Commissioner (2012), a $24,000 salary on $200,000+ of profit was rejected and distributions were recharacterized as wages. Paying a defensible, documented salary is your best protection.
Yes. The S-Corp only saves you FICA / self-employment tax, not income tax. Both your W-2 salary and your distributions flow through to your personal return and are subject to ordinary federal (and usually state) income tax. The benefit is narrow but real: distributions escape the 15.3% FICA layer, while still being taxed as income.
The common professional rule of thumb is that an S-Corp election starts to pay off once net profit consistently exceeds roughly $50,000–$80,000 per year. Below that, the added costs — payroll software, a separate Form 1120-S return, and possibly state franchise taxes — can outweigh the FICA savings. The election also suits a stable, profitable business more than one with volatile or uncertain income.
Yes — that overhead is the main trade-off. You must run formal payroll for your salary (withholding and remitting payroll taxes), file a separate corporate return (Form 1120-S) in addition to your personal 1040, issue yourself a W-2, and in some states pay franchise or excise taxes. Most owners use a payroll service and a CPA, and those fees should be weighed against the projected FICA savings.
The Qualified Business Income (QBI) deduction under IRC § 199A can let eligible owners deduct up to 20% of qualified business income — but generally only the distribution portion, not your W-2 salary, counts toward QBI. This creates tension: a lower salary increases FICA savings and QBI, yet it must still be reasonable. The interplay between salary, distributions, and QBI is genuinely complex and is a key reason to model it with a tax professional.
No. This tool gives a fast, educational estimate of potential FICA savings using standard rates and a salary percentage you choose. It does not account for your state’s rules, the QBI interaction, payroll and filing costs, or your full financial picture, and it is not tax or legal advice. Use it to see whether an S-Corp is worth exploring, then confirm the numbers with a qualified CPA before electing.

Deep Dive

Deep Dive: Maximizing Your Tax Savings

How It Works

The Magic of S-Corp Tax Savings

When you operate as a Sole Proprietor or Single-Member LLC, the IRS treats 100% of your net business profit as self-employment income. That means you owe the full 15.3% Self-Employment tax on your entire net earnings. For a freelancer netting $120,000, this amounts to roughly $16,955 in SE tax per year.

Electing S-Corporation status changes the equation dramatically. As an S-Corp owner-employee, you split your income into a W-2 salary (subject to FICA) and an owner's distribution (completely free of FICA tax). Every dollar paid as a distribution instead of salary represents a 15.3% FICA saving.

Worked Example — $120,000 Net Profit, 50% Salary
Sole Prop SE Tax (92.35% × 15.3%)≈ $16,955
S-Corp Salary ($60,000 × 15.3%)≈ $9,180
S-Corp Distribution ($60,000)$0 FICA
Estimated FICA Savings≈ $7,775

The savings compound significantly at higher income levels. At $200,000 net profit, the difference can exceed $15,000 annually. This is why S-Corp election is consistently one of the most recommended tax strategies for profitable solopreneurs earning above approximately $50,000–$80,000 in net profit.

IRS Guidelines

What Is a "Reasonable Salary"?

The IRS explicitly requires that S-Corp owner-employees receive a salary that is reasonable for the work performed — comparable to what you'd pay a non-owner employee or outside contractor to do the same job.

For a one-person service business, many tax professionals use a benchmark of 40–60% of net profit as a starting point. Underpaying yourself to minimize FICA is one of the most common S-Corp audit triggers the IRS pursues.

📊
Market Rate Test
Research BLS wage data or industry salary surveys for your specific role and geographic market.
📁
Document Everything
Keep minutes, a board resolution setting salary, and written justification for the amount chosen each year.
⚖️
Court Precedent
In Watson v. Commissioner (2012), the court found a $24K salary on $200K+ profit unreasonable. Distributions were reclassified as wages.
🔄
Review Annually
Revisit your salary each year as profit and market rates change. A static salary relative to growing profits raises red flags.

Should You Elect?

Is an S-Corp Right for You?

An S-Corp election is not universally superior — it comes with meaningful administrative overhead including payroll software, a separate corporate tax return (Form 1120-S), and in some states additional franchise taxes.

The consensus among tax professionals is that an S-Corp election generally starts to make financial sense when your net profit consistently exceeds $50,000–$80,000 per year. Below that threshold, the compliance costs often eat into or exceed the FICA savings.

One additional consideration: the Qualified Business Income (QBI) deduction under IRC § 199A allows eligible owners to deduct up to 20% of qualified business income. The interaction between S-Corp salary, distributions, and QBI is complex — a holistic analysis with a tax professional is essential before making the election.