Business & Freelance

S-Corp Tax Calculator

Estimate your potential tax savings from an S-Corp election.

Compare your self-employment tax as a sole proprietor against an S-Corp structure, where only your "reasonable salary" — not your full business profit — is subject to payroll taxes.

Enter a valid income.
Must be a defensible "reasonable" wage for your role — consult a CPASalary cannot exceed net business income.

Estimated Annual Tax Savings

—

Sole Proprietor SE Tax

—

S-Corp Payroll Tax

—

How to Use This Tool

  1. Enter your net business income for the year.
  2. Enter a reasonable S-Corp salary — what you'd realistically pay someone else to do your job (this must be defensible to the IRS, not arbitrarily low).
  3. Click Compare to see the estimated tax savings.

How S-Corp Tax Savings Work

As a sole proprietor, your entire net business income is subject to self-employment tax (15.3%, with the Social Security portion capped at the wage base). As an S-Corp, you pay yourself a "reasonable salary" (subject to standard payroll taxes) and take the remaining profit as a distribution, which is not subject to self-employment or payroll tax.

Sole Proprietor SE Tax = (Net Income × 92.35%) taxed at 15.3% (SS portion capped)

S-Corp Payroll Tax = Reasonable Salary × 15.3% (SS portion capped)

Why "Reasonable Salary" Is the Critical Constraint

The IRS requires S-Corp owner-employees to pay themselves a "reasonable" salary commensurate with the services they provide, specifically to prevent abuse of this tax advantage by setting salary artificially low. Setting salary too low relative to your role, industry, and experience is a well-known audit trigger and can result in back taxes and penalties.

Costs This Calculator Doesn't Include

For many self-employed people, S-Corp savings only become worthwhile once net income reaches a meaningful threshold (commonly cited around $60,000-$80,000+) that outweighs the added administrative costs and complexity.

Frequently Asked Questions

What counts as a "reasonable salary" for S-Corp purposes?

The IRS looks at what you would pay someone else to perform your role, considering your experience, industry, hours worked, and comparable market salaries — there's no fixed formula, and a CPA can help you determine a defensible figure.

Is an S-Corp election worth it for every self-employed person?

No — the tax savings need to outweigh the added costs of S-Corp formation, payroll processing, and additional tax filings, which is why it's generally only recommended once net income reaches a meaningful threshold. Consult a CPA for your specific situation.

This calculator is provided for general informational and estimation purposes only. Results should not be treated as professional financial, tax, legal, medical, or engineering advice. Always verify critical calculations with a qualified professional or official source before making decisions.