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S Corp Tax Calculator

Compare self-employment tax as a sole proprietor with S corp payroll taxes on a reasonable salary, after the costs of running the S corp.

Level: Grade 7

  • Common Core standard 7.RP.A.3Use proportional relationships to solve multistep ratio and percent problems. Examples: simple interest, tax, markups and markdowns, gratuities and commissions, fees, percent increase and decrease, percent error.
Printable worksheet

S Corp Tax Calculator

Inputs

Income minus business expenses for the year.

What you'd pay someone else to do your work. The IRS can treat distributions as wages if this is too low.

Payroll service, business tax return, state fees, and unemployment taxes.

Sets the Additional Medicare Tax threshold.

Result

Estimated yearly saving

$4,775.46

With a $60,000.00 salary, an S corp could save about $4,775.46 a year after $3,000.00 of costs. The salary must be reasonable. This is an estimate, not tax advice.

Sole proprietor: self-employment tax
$16,955.46
S corp: payroll taxes on your salary
$9,180.00
Tax saved before costs
$7,775.46
Extra S corp costs
$3,000.00
Left to pay out as a distribution
$52,410.00
Where the S corp's profit goes
  • Salary$60,000.0050%
  • Employer payroll tax$4,590.003.8%
  • Extra costs$3,000.002.5%
  • Distribution$52,410.0043.7%

See the step-by-step solution ↓

Step-by-step solution

  1. As a sole proprietor, self-employment tax applies to your whole profit. First take 92.35% of it, as the IRS does

    $120,000.00×92.35%=$110,820.00

  2. Apply 12.4% for Social Security, up to the $184,500.00 limit, and 2.9% for Medicare

    $13,741.68+$3,213.78=$16,955.46

  3. As an S corp, payroll taxes apply only to your salary. Take the employee's 6.2% for Social Security and 1.45% for Medicare

    $3,720.00+$870.00=$4,590.00

  4. The company pays a matching share, so double it

    $4,590.00+$4,590.00=$9,180.00

  5. Subtract to see the tax you'd save before costs

    $16,955.46−$9,180.00=$7,775.46

  6. Take off the extra costs of running the S corp. This is your estimated yearly saving

    $7,775.46−$3,000.00=$4,775.46

Test yourself

20 quick questions built from this calculator's formula: work out results, predict what happens when an input changes, and work backward from an answer. Every answer comes with the working.

Please note: Results are estimates for planning and comparison. Lenders, banks, and tax authorities may round differently or include fees not modeled here, so confirm figures with your provider before deciding.

What this calculator does

Find out whether running your business as an S corp could save you money on self-employment tax. As a sole proprietor, you pay that tax on your whole profit. As an S corp, payroll taxes apply only to the salary you pay yourself.

There are two catches. Your salary has to be reasonable for the work you do, and the S corp brings new costs for payroll and tax filings. Enter your profit, your salary and those costs. The calculator compares the two setups with 2026 rates and shows what you'd really keep.

Where it's used

Why this math matters outside the classroom:

  • A profitable freelancer. A consultant with $120,000 of profit and a $60,000 salary saves $4,775.46 after $3,000 of costs.
  • A smaller business. A shop owner with $40,000 of profit and a $30,000 salary loses $1,938.18 a year once $3,000 of costs are counted.
  • Testing a salary. Raising a salary from $60,000 to $80,000 adds 15.3% of the $20,000 difference, or $3,060 of payroll tax.
  • Budgeting payroll. An owner paying a $60,000 salary sets aside $4,590 for the company's matching share of payroll tax.

Grade level and standards: Grade 7; Common Core State Standards for Mathematics 7.RP.A.3. © Copyright 2010. National Governors Association Center for Best Practices and Council of Chief State School Officers. All rights reserved.

How to use it

  1. Enter your business profit before paying yourself.
  2. Enter a reasonable salary for the work you do.
  3. Enter the extra yearly costs of running an S corp.
  4. Choose your filing status, then read your estimated yearly saving.

What the inputs mean

Business profit before paying yourself
Income minus business expenses for the year.
Your reasonable salary
This must be reasonable pay for your work, not a number picked to cut tax. The IRS looks at things like your training, your duties, your time, and what similar businesses pay. Distributions can be treated as wages if your salary is too low.
Extra yearly costs of the S corp (optional)
Include your payroll service, the extra business tax return, state fees and any bookkeeping you'd add. Include federal and state unemployment taxes here too, because the calculator doesn't add them for you.
Filing status (2026)
This only sets the Additional Medicare Tax limit. It matters mainly at higher incomes.

Formula and method

sole proprietor tax = 15.3% × 92.35% × profit, with Social Security capped at the wage base
S corp payroll taxes = 2 × (6.2% × salary up to the wage base + 1.45% × salary)
tax saved = sole proprietor tax − S corp payroll taxes
yearly saving = tax saved − extra S corp costs
distribution = profit − salary − employer payroll tax − extra costs

A sole proprietor pays both halves of Social Security and Medicare through self-employment tax. The 2026 Social Security wage base is $184,500. Medicare has no cap.

An S corp pays the same two taxes through payroll, but only on your salary. The profit left after salary is paid out as a distribution, and distributions aren't subject to these taxes. That's the whole source of the saving.

Additional Medicare Tax of 0.9% applies above the limit for your filing status, on either setup. The calculator includes it in both columns.

Worked example

Your business makes $120,000 of profit before paying you. A reasonable salary for your work is $60,000. An S corp would cost $3,000 a year to run, and you file as single.

  1. Sole proprietor: $120,000 × 92.35% = $110,820 of net earnings.
  2. Self-employment tax: $13,741.68 + $3,213.78 = $16,955.46.
  3. S corp, employee share: $3,720 + $870 = $4,590.
  4. With the company's matching share: $4,590 + $4,590 = $9,180.
  5. Tax saved: $16,955.46 − $9,180 = $7,775.46.
  6. After costs: $7,775.46 − $3,000 = $4,775.46.

Result: You could save about $4,775.46 a year, as long as $60,000 is a reasonable salary for your work.

Understanding the result

A positive result is an estimated saving on employment taxes. A negative result means the extra costs are more than the tax you'd save. That's common at lower profits.

Test a higher salary before you trust the number. If a fair salary for your job is $80,000 rather than $60,000, payroll taxes rise by $3,060 a year.

A lower salary also has a cost of its own. It can reduce your future Social Security benefit, and it limits retirement plan contributions based on pay.

Assumptions and limitations

  • You're the only owner, and you take one salary for the full year.
  • Your profit is the same under either setup.
  • You have no other wages that use up the Social Security wage base.
  • Rates and the wage base are for 2026.
  • It compares employment taxes only. Income tax can change too, through the deduction for half of self-employment tax and the qualified business income deduction.
  • It doesn't choose a reasonable salary for you. That depends on your facts, and the IRS can challenge it.
  • It doesn't include state rules. Some states tax S corps or charge high annual fees.
  • This is an estimate for planning, not tax or legal advice. Talk to a tax professional before you elect S corp status.

Frequently asked questions

What is a reasonable salary for an S corp owner?

It's what you'd pay someone else to do your work. The IRS considers your training, duties, time spent, and what comparable businesses pay. There's no fixed percent of profit.

At what income does an S corp make sense?

There's no single answer. The profit left after a reasonable salary has to save more tax than the S corp costs to run. Enter your own numbers to see.

Can I pay myself no salary?

Not if you work in the business. The IRS requires reasonable pay for your services before you take distributions.

Why isn't this my full tax saving?

This page compares employment taxes only. Your income tax can change a little too, up or down.

What costs should I include?

Include payroll service fees, the business tax return, state fees, extra bookkeeping, and unemployment taxes on your salary.

Sources

How this calculator is checked

Method: Rates and the $184,500 wage base from src/lib/finance/tax-2026.ts, with rates and wage base re-read from IRS Topic 751 and the 92.35% factor from IRS Topic 554. Reasonable-pay rule from the IRS S corporation compensation page. Tests use hand-worked cases. The calculation is covered by automated tests with known reference values and edge cases. Last updated 2026-10-31. Found a problem? Tell us.

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