An S-corp owner pays payroll tax on salary, but not on distributions. See the potential savings.
Estimates the payroll (FICA) tax you could avoid by taking part of your S-corp profit as a distribution rather than paying all of it as salary.
S-corp owners must pay themselves a reasonable salary, which is subject to Social Security and Medicare taxes, but profit taken as a distribution avoids those payroll taxes. This tool compares taking all profit as salary against splitting it into salary plus distribution. It applies roughly 15.3 percent on wages up to the 2025 Social Security wage base of 176,100 and about 2.9 percent above it. The estimated savings equal the payroll tax that the distribution portion escapes.
The IRS requires that your salary reflect fair pay for the work you perform, and setting it too low to dodge payroll tax invites audits and penalties. Reasonable compensation depends on your role, experience, hours, and industry norms. Distributions also do not build Social Security earnings credits the way wages do. This is an educational estimate and not tax advice; work with a tax professional to set a defensible salary.
It is pay that matches what a similar business would pay someone for the same work, based on duties, experience, and market rates. Setting it artificially low to avoid payroll tax can trigger IRS scrutiny and penalties.
Distributions are not subject to Social Security and Medicare taxes, which is the source of the savings. They are still generally subject to income tax.
Possibly, because only wages count toward your Social Security earnings record, not distributions. A lower salary today can mean lower future benefits.
See the exact formula and a worked example on our methodology page.