LLC vs S Corp Tax Calculator
Enter your net profit, W-2 salary, and filing status to model FICA savings, the 0.9% Additional Medicare surtax, your §199A QBI deduction impact, and Solo 401(k) contribution ceiling — all using verified 2026 IRS figures.
0.9% Additional Medicare surtax is inactive at $150,000 — activates above the $200,000 threshold.
Employment Tax Comparison
$21,194
SE tax + Additional Medicare
$11,517
Payroll + FUTA + Additional Medicare
$9,677
Employment taxes legally avoided
| Line Item | Sole Prop | S-Corp |
|---|---|---|
| Income Structure | ||
| Net Business Profit | $150,000 | $150,000 |
| W-2 Owner Salary | N/A | $75,000 |
| Distributions (escape FICA) | $0 | $75,000 |
| FICA / Self-Employment Tax | ||
| SE / Payroll Tax Base | $138,525 | $75,000 |
| Social Security Tax(12.4%, capped at $184,500) | $17,177 | $9,300 |
| Medicare Tax(2.9%, no cap) | $4,017 | $2,175 |
| Additional Medicare Surtax(0.9% over $200,000 — IRC §3101(b)(2)) | $0 | $0 |
| FUTA Tax(0.6% on first $7,000 after SUTA credit — IRC Ch. 23) | N/A | $42 |
| Total Employment Taxes | $21,194 | $11,517 |
| QBI Deduction — IRC §199A (20% pass-through deduction) | ||
| Qualified Business Income Base(sole prop: profit − ½ SE tax | S-Corp: distributions only) | $139,403 | $75,000 |
| 20% QBI Deduction(reduces taxable income — multiply by your bracket for $ value) | $27,881 | $15,000 |
| Retirement Contributions — Solo 401(k) / SEP IRA (IRS Pub. 560) | ||
| Max Employer Contribution(sole prop: 20% of net SE income | S-Corp: 25% of W-2 salary) | $27,881 | $18,750 |
| Employee Elective Deferral | $24,500 | $24,500 |
| Max Annual Retirement Contribution(§415 cap: $72,000) | $52,381 | $43,250 |
Employment taxes — 2026 IRS rules. SE base = net profit × 0.9235 (Schedule SE). SS (12.4%) capped at $184,500; Medicare (2.9%) has no cap. S-Corp payroll taxes apply to W-2 salary only — distributions escape FICA entirely. FUTA effective rate 0.6% after 5.4% SUTA credit, max $42/yr.
Additional Medicare (0.9%) — IRC §3101(b)(2). Applies to earned income above $200,000 for Single filers. Sole props pay it on SE income; S-Corps pay it on W-2 salary only — distributions are exempt, giving S-Corps an edge at high income levels.
QBI Deduction (§199A) — S-Corp W-2 salary is excluded from the QBI base; only distributions qualify. At high profits, this penalty can offset FICA savings. Phase-out W-2 wage limitations activate above $191,950 taxable income. Consult a CPA for the exact W-2 wage limitation calculation.
Retirement squeeze — Lowering your S-Corp salary to save on FICA also shrinks your max 401(k) employer contribution (25% of W-2 vs. 20% of net SE income). If retirement maximization is a priority, factor this ceiling into your salary decision. 2026 §415 total limit: $72,000.
Federal estimates only. Subtract state S-Corp fees and compliance costs (~$1,000–$3,500/yr) for true net savings. Not tax advice — work with a licensed CPA.
An S-Corporation is not a separate business structure. It is a federal tax classification that any eligible LLC or C-Corporation can elect by filing IRS Form 2553. Once approved, it changes how your business income is taxed. For a lot of self-employed professionals in 2026, that change is worth paying close attention to.
The core mechanism: salary vs. distributions
As a sole proprietor or single-member LLC, the IRS treats your entire net profit as earned income subject to self-employment tax. For 2026, that rate is 15.3%: a 12.4% Social Security portion (capped at the $184,500 wage base) and a 2.9% Medicare portion with no cap. Run the numbers on $150,000 in net profit and you owe roughly $21,194 in SE tax before you pay a dollar of income tax.
With an S-Corp election, you split income into two categories. First, a W-2 salary, which is subject to FICA payroll taxes. Second, shareholder distributions, which bypass FICA entirely. Payroll taxes apply only to the salary. The distribution portion avoids the 15.3% rate completely.
What the IRS considers a "reasonable salary"
You cannot pay yourself $1 and take the rest as a distribution. The IRS requires S-Corp owner-employees to receive compensation "comparable to what would ordinarily be paid for like services by like enterprises." Pay yourself what you would have to pay someone else to do your job.
For professional service businesses, a salary of 40% to 60% of net profit is generally defensible. Minimum defensible amounts tend to start around $30,000 to $40,000 depending on location and role. The IRS cross-references Bureau of Labor Statistics wage data and industry surveys. Document your salary decision every year with a CPA. A salary that is clearly too low is a known audit flag.
Real-world scenario: $100,000 net profit freelancer in 2026
| Scenario | SE / Payroll Tax | Gross Savings |
|---|---|---|
| Sole Proprietor ($100k profit) | $14,130 | baseline |
| S-Corp ($40k salary, $60k distribution) | $6,162 | $7,968 |
| After admin costs ($1,500 to $3,500/yr) | varies | ~$5,000 net |
The admin overhead is real: a separate business return (Form 1120-S), monthly payroll processing, and state registration fees average $1,500 to $3,500 per year. Factor that in before deciding.
When does the S-Corp election make sense?
Most tax professionals put the threshold at net profit consistently above $60,000 to $80,000 per year. Below that, payroll software, CPA fees, and state franchise taxes tend to absorb the savings. Above $100,000, the math typically works out. Run your specific numbers in the calculator above based on the 2026 tax figures.
The §199A QBI deduction trade-off: your salary is a double-edged sword
The Tax Cuts and Jobs Act created a 20% deduction on qualified business income under IRC §199A. For a sole proprietor, the QBI base is essentially all net profit minus the Schedule SE deduction. For an S-Corp owner, only distributions qualify. W-2 salary is excluded from the QBI base entirely.
This creates a direct trade-off. Raising your salary reduces FICA exposure but shrinks the QBI deduction. Lowering your salary increases the QBI deduction but raises payroll taxes. For a single owner with $200,000 in profit and an $80,000 salary, the S-Corp QBI base is $120,000, generating a $24,000 deduction. A sole proprietor with the same $200,000 profit gets a QBI base near $186,000, generating a $37,200 deduction. The $13,200 gap in deductions translates to real dollars at your marginal tax rate. Phase-out W-2 wage limitations add another layer above $191,950 (single) or $383,900 (MFJ) in taxable income. The calculator shows both QBI deduction amounts side by side.
The 0.9% Additional Medicare surtax: where S-Corp structure wins at high income
IRC §3101(b)(2) adds a 0.9% surtax on earned income above $200,000 for single filers and $250,000 for married filing jointly. For sole proprietors, this applies to self-employment income above the threshold. For S-Corp owners, it applies only to the W-2 salary portion. Distributions are exempt.
At $350,000 net profit filing single, a sole proprietor faces the surtax on roughly $123,000 above the $200,000 threshold, adding about $1,100 in tax. An S-Corp owner who sets salary at $120,000 stays entirely below the threshold on the salary side. The remaining $230,000 taken as distributions avoids both FICA and the surtax. Toggle between Single and Married Filing Jointly in the calculator above to see where your income lands relative to each threshold.
The retirement squeeze: how a lower S-Corp salary shrinks your 401(k) ceiling
Per IRS Publication 560, a sole proprietor can contribute up to 20% of net self-employment income as the employer contribution to a Solo 401(k). An S-Corp owner can contribute up to 25% of W-2 salary. The higher percentage sounds better, but the math only works in your favor if the salary is high enough.
Example: $150,000 net profit. As a sole proprietor, the employer contribution ceiling is roughly $27,880. Adding the $24,500 elective deferral brings the total to about $52,380. As an S-Corp with a $60,000 salary, the employer contribution is $15,000. Same elective deferral brings the total to $39,500. That is a $12,400 gap in tax-deferred retirement savings per year. At a 24% marginal rate, that gap costs roughly $2,976 in taxes paid today that could have been deferred. The 2026 §415 total limit is $72,000. The calculator shows the retirement contribution ceiling for both structures so you can factor this into your salary decision alongside the FICA savings.
FUTA: the $42 overhead most people ignore
S-Corporations are required to pay Federal Unemployment Tax on the first $7,000 of W-2 salary under IRC Chapter 23. The gross rate is 6%, but states that maintain their own unemployment fund receive a 5.4% credit, bringing the effective rate to 0.6% with a maximum cost of $42 per year. Sole proprietors pay no FUTA on self-employment income. The calculator includes this as a small S-Corp cost, but it rarely changes the decision at this dollar amount. State S-Corp registration fees and annual report costs typically outweigh it by a factor of 30 or more.