An S Corporation (S Corp) is a tax election that allows business owners to split income between a W-2 salary and a pass-through distribution — paying FICA (15.3%) only on the salary portion. This calculator computes your exact annual FICA savings vs. a sole proprietor or LLC, using the 2026 Social Security wage base of $184,500 and the permanent 20% QBI deduction.
2026 S Corp Tax Savings Calculator
The S Corp election is the #1 tax strategy for business owners earning over $80k. See your exact FICA savings in seconds.
How S Corp FICA Savings Are Calculated
A sole proprietor pays self-employment tax (SE tax = 15.3%) on 92.35% of all net profit. An S Corp owner pays FICA only on their W-2 salary — distributions bypass FICA entirely. The savings is the FICA you would have paid on the distribution amount.
| Component | 2026 Rate |
|---|---|
| Social Security (employee + employer) | 12.4% (capped at $184,500) |
| Medicare (employee + employer) | 2.9% (no cap) |
| Total SE Tax Rate | 15.3% |
| QBI Deduction on Distributions | 20% (permanent, OBBBA 2026) |
For a business owner with $150,000 net profit paying themselves a $90,000 salary, the distribution of $60,000 saves roughly $9,200 in FICA taxes annually — before the 20% QBI deduction further reduces income tax on that distribution.
⚠️ Expert Pro-Tip
The S Corp breaks even at ~$80,000 net profit — but the salary level matters more than the election. Annual S Corp compliance (payroll filing, Form 1120-S, state fees) costs $1,500–$3,000/year. Your FICA savings must exceed those costs to justify the election. At $80k profit with a 60/40 salary split, you save roughly $3,700 in FICA but spend $2,000 on compliance — a real net savings of only $1,700. At $150k profit, that spread inverts dramatically.
2026 S Corp Tax Savings Calculator
See exactly how much FICA tax you save by electing S Corp status vs. a standard LLC.
0.75% TX Franchise (Margin) Tax on S Corp gross receipts
Annual Tax Savings with S Corp
That's $119/month you keep instead of paying the IRS.
FICA Tax: LLC vs. S Corp
LLC / Sole Prop
S Corporation
Your S Corp Income Split
Next Step: Related Calculators
How to Set a Reasonable S Corp Salary in 2026
Why the S Corp Strategy Still Works in 2026
Under the One Big Beautiful Bill Act (OBBBA) of 2026, the core mechanics of the S Corp tax strategy are unchanged and arguably stronger than ever. The OBBBA made the 20% Qualified Business Income (QBI) deduction permanent — a key benefit that applies directly to S Corp distributions. Combined with the 2026 Social Security wage base of $184,500, business owners who split income between a W-2 salary and pass-through distributions can save thousands in FICA taxes annually.
For context: a sole proprietor pays 15.3% FICA (self-employment tax) on 92.35% of their entire net profit. An S Corp owner only pays that 15.3% on their W-2 salary. Every dollar of profit taken as a distribution skips FICA entirely — that is the strategy.
The "Reasonable Salary" Requirement
The IRS is not naive. They require that S Corp owner-employees pay themselves a reasonable salary — defined as what you would pay a third-party employee to perform the same services. There is no magic number, but the IRS audits aggressively when salary falls below 30–40% of net profit.
The 60/40 Rule is the most widely used guideline: pay yourself 60% of net profit as salary and take 40% as a distribution. This is conservative enough to pass IRS scrutiny while still generating meaningful FICA savings. Our calculator pre-fills this ratio automatically and warns you if your proposed salary falls into high-audit-risk territory.
The 20% QBI Deduction: The Hidden Bonus
Thanks to the OBBBA making QBI permanent, S Corp owners receive a second major tax benefit: the ability to deduct 20% of their qualified business income (distributions) before calculating ordinary income tax. Because W-2 wages are not eligible for the QBI deduction, this creates another incentive to carefully balance salary vs. distribution — you want enough salary to satisfy the IRS, but not so much that you lose the full QBI benefit on your distributions.
State-Specific Considerations
Not all states treat S Corps the same way. Most states follow the federal pass-through treatment, but several impose additional taxes:
- California: Imposes a 1.5% S Corp Franchise Tax on net income (minimum $800/year), in addition to personal income tax on distributions.
- New Hampshire: Has a Business Profits Tax of 7.5% that applies to S Corp income, even though NH has no personal income tax.
- Tennessee & Texas: Both impose franchise/excise taxes on S Corp gross receipts or business value.
Our calculator accounts for these state-level S Corp taxes automatically. Always consult a CPA for your specific situation.
When Does an S Corp NOT Make Sense?
The S Corp strategy has real costs: payroll setup, quarterly payroll tax filings, a separate business tax return (Form 1120-S), and state registration fees. These compliance costs typically range from $1,500 to $3,000 per year. If your FICA savings don't exceed these costs, the election isn't worth it. As a rule of thumb, the S Corp election becomes advantageous when net profit exceeds approximately $80,000 per year.