LLC vs S-Corp Tax Calculator

What this comparison actually tests

An LLC and an S corporation are not mutually exclusive legal forms. An eligible LLC can elect S-corporation tax treatment. This calculator compares two federal payroll-tax paths for the same owner-operated business: reporting all net profit as Schedule C self-employment earnings, or paying a user-selected reasonable W-2 salary from an S corporation and treating remaining profit as distributions. It does not compare employee versus independent-contractor classification.

On the Schedule C side, net profit is multiplied by 92.35%. The calculator then applies 12.4% Social Security tax up to the remaining annual wage base and 2.9% Medicare tax. It also includes the 0.9% Additional Medicare Tax when combined entered wages and adjusted self-employment earnings cross the filing-status threshold. The IRS self-employment tax guide explains the 15.3% combined rate and Schedule SE adjustment. The 2026 Social Security wage base is $184,500, according to the Social Security Administration.

The S-corp side applies employee and employer Social Security and Medicare taxes to salary. Distributions are net profit minus salary and do not receive payroll tax in this model. Other W-2 wages can reduce the employee Social Security base, but an S corporation still applies its own employer wage base. Additional Medicare Tax is employee-only.

Rates current as of September 2026.

Reasonable salary is not a savings dial

The IRS requires shareholder-employees who perform services to receive reasonable compensation before non-wage distributions. It does not publish a safe percentage of profit. Its S-corporation compensation guidance points to work performed, duties, experience, time devoted, comparable pay, and compensation agreements. Enter a supportable annual salary rather than lowering the number until the calculator produces attractive savings.

If salary exceeds entered profit, the calculator caps salary at profit. That keeps displayed distributions from becoming negative, but it does not determine whether the business has enough cash for payroll or whether losses, shareholder basis, or debt basis permit a distribution.

Worked 2026 example

Assume $120,000 of 2026 Schedule C profit, a proposed $70,000 reasonable S-corp salary, $3,000 of added annual compliance cost, single filing status, and no other W-2 wages. The Schedule C side first uses the 2026 92.35% Schedule SE factor, producing $110,820 of net earnings. The 2026 12.4% Social Security and 2.9% Medicare rates produce $16,955.46 of SE tax. The salary receives $10,710 of combined employee-and-employer FICA at those 2026 rates, and $50,000 remains as modeled distributions. Net payroll-tax savings are $16,955.46 − $10,710 − $3,000 = $3,245.46. Income tax, state entity tax, and the cash effect of deductible employer payroll tax are outside that result.

Read savings and break-even carefully

Net savings equals modeled Schedule C SE tax minus modeled S-corp FICA minus your annual compliance cost. Include payroll service, tax-return preparation, bookkeeping, state filings, unemployment accounts, and other incremental costs you expect. The break-even result solves for the profit where that difference reaches zero while holding salary, wages, filing status, and compliance cost fixed. In practice, reasonable salary often changes as profit and duties change, so the result is a scenario boundary, not an election recommendation.

One-half of self-employment tax is generally deductible under IRC §164(f). Employer payroll tax is generally a business expense. Those deductions affect income tax, but this focused calculator does not convert them into income-tax savings. It also excludes the qualified business income deduction, state S-corporation taxes, payroll credits, retirement-plan limits, health-insurance treatment, and late-election relief.

Common mistakes and edge cases

• Lowering salary only to manufacture savings ignores reasonable-compensation evidence.
• Comparing federal payroll tax while omitting state entity fees, payroll service, tax preparation, and bookkeeping can reverse the result.
• Treating distributions as tax-free confuses payroll-tax treatment with income-tax treatment.
• Ignoring other W-2 wages can overstate the Schedule C Social Security portion or mishandle employee withholding.
• Holding salary fixed while reading the break-even result assumes duties and market compensation never change as profit grows.

What to do next

Document duties, hours, experience, and comparable compensation before modeling salary. Get realistic state and compliance costs, then build a complete income-tax comparison that includes QBI and employer deductions. Check entity eligibility, election deadlines, payroll registration, and cash available for regular payroll. Use the calculator to frame questions for an adviser, not to file an election from one displayed savings number.

Disclaimer: This calculator is informational only and is not tax or legal advice. Confirm entity eligibility, reasonable compensation, payroll obligations, and election timing with current IRS guidance and a qualified adviser.