An S-corp owner pays payroll tax on salary, but not on distributions. See the potential savings.
How this is calculated Embed on your siteUpdated October 2026 · 2026 wage base
As a sole proprietor or single-member LLC, all your profit is subject to self-employment tax: 15.3% up to the Social Security wage base ($184,500 in 2026) and 2.9% above it. Electing S corporation status lets you split profit into a salary, which carries payroll tax, and distributions, which don't. This calculator estimates the payroll tax that split saves. With the defaults, $150,000 of profit with a $70,000 salary saves about $12,240 a year compared with taking it all as wages.
On $150,000 of profit:
| Salary | Payroll tax on salary | Taken as distributions | Payroll tax saved |
|---|---|---|---|
| $50,000 | $7,650 | $100,000 | $15,300 |
| $70,000 | $10,710 | $80,000 | $12,240 |
| $100,000 | $15,300 | $50,000 | $7,650 |
A lower salary saves more on paper, but the salary can't be set just to save tax. That's the core rule of S corp pay.
The IRS requires S corp owners who work in the business to pay themselves a reasonable salary: roughly what the business would pay someone else to do the same work. If the salary is too low, the IRS can reclassify distributions as wages and assess back payroll taxes, penalties and interest. Common ways to support the number include salary surveys for your role and region, what you'd pay to replace yourself, and the share of profit that comes from your personal work versus the business itself.
The savings have to outweigh the extra costs and work:
Many accountants suggest looking at an S corp once profit reliably exceeds what a reasonable salary would be by a comfortable margin, often somewhere above $60,000 to $80,000 of profit, but the right point depends on your field and state.
Compare with what you'd pay as a sole proprietor using the self-employment tax calculator.
It saves payroll tax on the profit you take as distributions instead of salary: 15.3% below the Social Security wage base and 2.9% above it. On $150,000 of profit with a $70,000 salary, that is about $12,240 a year before the costs of running the S corp.
Roughly what the business would pay someone else to do your job. The IRS looks at your duties, time, experience and what comparable businesses pay.
When the payroll tax saved clearly exceeds the added costs of payroll, accounting and state fees. For many owners that starts somewhere above $60,000 to $80,000 of profit, depending on the field and state.
Not if you work in the business. Owners who provide services must take a reasonable salary before distributions, or the IRS can reclassify the distributions as wages.
Not directly. Salary and distributions are both taxed as income. The savings are in Social Security and Medicare tax, with some interaction with the QBI deduction.
Payroll tax computed on both halves (employer and employee): 12.4% Social Security up to the 2026 wage base of $184,500 plus 2.9% Medicare; the 0.9% additional Medicare tax is not included. Not tax advice; work with a CPA before electing S corp status.