S corp tax calculator: what an S corporation could save you

How can an S corporation lower your tax?

• As a sole proprietor (or a single-member LLC, which the IRS taxes the same way) you pay self-employment tax on 92.35% of your whole profit: 12.4% for Social Security and 2.9% for Medicare.
• An S corporation pays you a salary through payroll. The corporation and you each pay 6.2% Social Security and 1.45% Medicare on the salary. The rest of the profit reaches you on a Schedule K-1 and pays no Social Security or Medicare.
• Income tax mostly stays the same, with one big change: the 20% QBI deduction counts only the K-1 income, not the salary. That takes back part of the saving.
• It costs money to run: payroll, the corporation’s own tax return, federal and state unemployment tax on your salary, and in some states a tax of their own.
• The salary must be reasonable. The lower the salary, the bigger the saving, which is why the IRS checks it (below).

The calculator adds all of this up, both ways, for your state. It shows the arithmetic; it does not tell you whether to elect S corporation status.

What is a reasonable salary for an S corporation owner?

The IRS does not give a number. In its own words:

“S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee.”

“The IRS has the authority to reclassify payments made to shareholders from non-wage distributions (which are not subject to employment taxes) to wages (which are subject to employment taxes).”

“There are no specific guidelines for reasonable compensation in the Code or the Regulations.”

The IRS lists these factors (“Some factors in determining reasonable compensation”), and its fact sheet FS-2008-25 gives the same nine as factors the courts have used:

1. Training and experience
2. Duties and responsibilities
3. Time and effort devoted to the business
4. Dividend history
5. Payments to non-shareholder employees
6. Timing and manner of paying bonuses to key people
7. What comparable businesses pay for similar services
8. Compensation agreements
9. The use of a formula to determine compensation

Quoted from S corporation compensation and medical insurance issues: reasonable compensation (IRS) and Wage compensation for S corporation officers, FS-2008-25, August 2008 (IRS fact sheet).

“What comparable businesses pay for similar services” is where pay data helps. Type your job in the calculator to see what employees in it earn in your state, from the U.S. Bureau of Labor Statistics (OEWS, May 2025), next to the salary you typed. It is one input among the factors above, not a salary we suggest. Every job’s pay is also on our pay by job pages.

A worked example, by hand

Single, Texas, $100,000 of profit, a $50,000 salary, and $4,200 a year of running costs (the IRS’s average for a small S corporation’s return):

1. Sole proprietor: self-employment tax. 92.35% of $100,000 is $92,350 of net earnings. Social Security takes 12.4% and Medicare 2.9%: $14,129.55.
2. Sole proprietor: income tax. Half the self-employment tax ($7,064.78) and the $16,100 standard deduction come off, then the QBI deduction of $15,367.05. Federal income tax on $61,468 is $8,235.00. Texas has no income tax. Total: $22,364.55.
3. S corporation: payroll taxes on the salary. The corporation pays 6.2% Social Security and 1.45% Medicare on $50,000 ($3,825.00), plus $42.00 of federal unemployment tax (0.6% of the first $7,000) and $243.00 of Texas unemployment tax at its new-employer rate. You pay the same 6.2% and 1.45% again: $3,825.00.
4. S corporation: what is left. $100,000 less the salary, the employer’s taxes and $4,200 of running costs leaves $41,690 of K-1 income. It pays no Social Security or Medicare.
5. S corporation: income tax. Your salary plus the K-1 income is $91,690. The QBI deduction is 20% of the K-1 income only (the salary is not qualified business income): $8,338.00. Federal income tax is $9,507.44. Total with the payroll taxes and running costs: $21,642.44.
6. The difference. $22,364.55 − $21,642.44 = $722.11 a year. Social Security and Medicare alone fall by $6,480, but the smaller QBI deduction and the running costs take back most of it.

The result panel above starts on this example.

What does an S corporation cost to run?

• Its tax return. An S corporation files Form 1120-S every year, by the 15th day of the 3rd month after its tax year ends. The IRS estimates small S corporations spend $4,200 a year out of pocket on it, on average (most spend less, it says).
• Payroll. Your salary goes through payroll: withholding, deposits, a quarterly Form 941, a yearly Form 940 and a W-2. Most owners pay a payroll service.
• Unemployment tax on your salary. Federal unemployment tax is 6% of the first $7,000 of wages, less a credit of up to 5.4% for state unemployment tax. Each state charges its own; the calculator uses the new-employer rate the U.S. Department of Labor lists for your state.
• State charges. Some states tax S corporations themselves, or charge a minimum tax. The table below has each one we found.

When is the deadline to elect S corporation status?

A corporation, or an LLC that can choose to be taxed as one, elects on Form 2553. The IRS’s instructions say to file it no more than 2 months and 15 days after the start of the tax year the election is to take effect, or at any time during the tax year before it. For a calendar year starting January 1, 2027, that is March 15, 2027. Filed later, it starts the next tax year, unless the IRS grants relief for a late election; the instructions describe relief for a form filed within 3 years and 75 days, when their conditions are met.

Whether and when to elect is a decision for you and a tax professional.

What does this estimate leave out?

• Health insurance: an S corporation owner’s premiums go on the W-2 and come off as a deduction, and a sole proprietor deducts them too. Neither is in these sums.
• Retirement plans: your salary changes how much you can put into a 401(k) or other plan.
• Other income, credits, dependents and itemized deductions: both sides use the standard deduction and nothing else.
• A loss, a spouse’s own business, more than one owner, and business property (the QBI deduction assumes none).
• Local business taxes, and state annual report fees you would pay either way.
• Your state’s own unemployment rate: we use the new-employer rate the U.S. Department of Labor lists, unless you type yours.
• The full S corporation rules of New York City, the District of Columbia, Tennessee and New Hampshire: the calculator names them but does not add them up.