How we estimate S-corp savings.

The core idea

A single-member LLC taxed as a sole proprietorship pays self-employment tax on its net profit. That tax is 15.3% (12.4% Social Security plus 2.9% Medicare) applied to 92.35% of net profit, with the Social Security portion capping at the annual wage base ($176,100 for 2025) and an extra 0.9% Medicare surtax over higher-income thresholds.

When the same business elects S-corp taxation, the owner takes a reasonable W-2 salary that pays regular payroll tax, and the remaining profit passes through as a distribution that is not subject to self-employment or payroll tax. The savings is the difference between those two payroll-tax bills, minus the real cost of running the S-corp.

What the calculator models

• Self-employment tax on 92.35% of net profit, with the Social Security wage-base cap.
• Coordination with your outside W-2 wages. If a job already fills your Social Security wage base, most of the savings disappears, and the calculator reflects that.
• The additional 0.9% Medicare tax over the threshold for your filing status.
• Total FICA (employee plus employer) on the S-corp salary.
• The annual cost of running the S-corp (payroll, extra tax prep, state fees).
• State entity-level taxes that an S-corp pays but a sole proprietor does not.
• A breakeven profit: the point where the savings first clears the added cost.

What it does not model yet

This version estimates the payroll-tax savings, which is the dominant and most defensible number. It deliberately leaves two things for your CPA, because they are complex and situation-specific:

• The Qualified Business Income (QBI) deduction, which can shift the answer near its phase-outs.
• Income-tax bracket effects and the half-of-SE-tax and employer-FICA deductions.

These tend to be second-order for the S-corp decision, but they matter, and a professional should layer them onto this estimate.

How we handle your state

We reviewed all 50 states plus DC. The only state taxes that change this comparison are the ones an S-corp owes that a sole proprietor does not, such as California's franchise tax, Illinois's replacement tax, or the entity-level tax in states that treat S-corps like C-corps (DC and Tennessee). Those are charged against your savings.

Gross-receipts taxes (Hawaii, Washington, Ohio) and ordinary state income tax apply the same whether you elect or not, so they do not change the savings and are shown as a note rather than a cost. New York City is a special case: it does not recognize S-corps and adds its own 8.85% tax, which the state-level number cannot capture on its own.

Reasonable salary

The IRS requires a reasonable salary based on your role, hours, experience, and comparable pay, not a fixed percentage. Until per-occupation wage data is wired in, this tool shows a starting band near 40% to 55% of net profit and lets the savings range flex across it. Treat that band as a conversation starter with your CPA, not a final figure.

Where the estimate can be wrong

• Your reasonable salary is a judgment call, and it moves the savings directly.
• QBI and income-tax interactions can move the answer by thousands.
• Retirement plan contributions (Solo 401(k), SEP-IRA) look different under each structure.
• State rules change, and local taxes (like city income taxes) can apply on top.