S Corp tax savings calculator
See what an S Corp election would actually save you in 2026 — after payroll tax, after the QBI deduction you give up, and after the real cost of running one. Most calculators only show you the first part.
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For informational purposes only. These are simplified estimates that may not be correct for your situation, and nothing here is tax advice. Always confirm with your CPA, enrolled agent, or tax advisor before acting.
Electing S Corp status means filing IRS Form 2553. We prepare it, collect every shareholder signature, and send it to the correct IRS service center by fax and USPS Certified Mail with tracking — from $49. Late elections are included at no extra cost, and New York's Form CT-6 is free with your filing.
What the model assumes. 2026 figures: Social Security wage base $184,500, 12.4% Social Security and 2.9% Medicare, plus 0.9% Additional Medicare above $200,000 single / $250,000 joint. It covers federal payroll and income tax only — it excludes state and local taxes, applies the QBI deduction as a flat 20% without the taxable-income limitation or specified-service phase-outs, ignores other household income that can change your bracket and Medicare surtax, and assumes the salary you entered meets the IRS reasonable-compensation standard. There is no IRS safe harbor for that salary; it must reflect what you'd pay someone else to do your job. Tax law and these figures change — verify anything you rely on against current IRS guidance.
Where the savings actually come from
Self-employment tax is 15.3% — 12.4% for Social Security on the first $184,500 of net earnings in 2026, plus 2.9% for Medicare with no cap. Run your business as a sole proprietor, a single-member LLC, or a partnership and essentially every dollar of profit passes through that.
Elect S Corp status and the profit splits in two. You put yourself on payroll at a reasonable salary, which carries the full 15.3%. Everything above that comes out as a distribution, which is still subject to income tax but not to payroll tax. That gap is the entire strategy.
The catch is that an S Corp costs more to operate — you need real payroll and a separate 1120-S return — and the salary you pay yourself reduces your Section 199A qualified business income deduction, because W-2 wages paid to the owner aren't qualified business income. Those two forces are why the election is powerful at $150,000 of profit and often pointless at $40,000.
Lowballing the salary. It is tempting to set it near zero and take everything as a distribution, and it is the fastest way to lose an audit. The IRS can recharacterize distributions as wages and add penalties and interest. Pay what the job is worth.
Common questions
How much does an S Corp election actually save?+
The savings come from payroll tax, not income tax. As a sole proprietor or single-member LLC you pay 15.3% self-employment tax on essentially all profit. As an S Corp you pay that only on your W-2 salary, and distributions above it escape payroll tax. Against that you have to set the added cost of payroll and an 1120-S return, plus a smaller Section 199A deduction, because owner wages don't count as qualified business income. For many service businesses the election starts paying for itself somewhere around $50,000 to $80,000 of profit.
What is a reasonable salary for an S Corp owner?+
It's what you would have to pay an unrelated person to do your job — the standard in Treasury Regulation 1.162-7. There is no IRS safe harbor and no fixed percentage, despite what you may read. Paying yourself an unreasonably low salary to shrink payroll tax is the single most common way S Corp owners get into trouble on audit. Practitioners often start around half of profit for a service business and then adjust to real market wage data for the role, hours, and location.
Why is my saving smaller than other calculators show?+
Most calculators stop at the payroll tax difference. This one also subtracts two real costs they skip: the S Corp deducts less payroll tax than a sole proprietor deducts of self-employment tax, and moving profit into W-2 wages shrinks the 20% qualified business income deduction. Both raise federal income tax and both cut against the payroll savings. Showing the number after those adjustments is the honest figure.
When is the deadline to elect S Corp status for 2026?+
Form 2553 is generally due within two months and fifteen days of the start of the tax year the election takes effect — March 16, 2026 for a calendar-year business electing for 2026, since the 15th falls on a Sunday. A newly formed business measures from its formation date instead. If you missed it, Revenue Procedure 2013-30 allows a late election up to three years and 75 days after the intended effective date when you have reasonable cause.
Does electing S Corp status change my state taxes?+
Often yes, and this calculator covers federal tax only. Some states follow the federal election automatically, some require a separate state election, and a few impose their own entity-level taxes on S corporations regardless. New York, for example, requires Form CT-6 to be recognized as a New York S corporation.