W-2 vs 1099 pay
Compare a W-2 job with a 1099 hourly rate. Counts self-employment tax, health care, paid time off, 401(k) match and tax breaks. Free, no sign-up.
Net annual S-Corp savings
+$2,941/yr
S-Corp ($16,840/yr total cost) vs LLC ($19,781/yr SE tax)Example calculationYes, electing S-Corp status saves money after fees and QBI impact
On $140,000 of net profit with a $70,000 W-2 salary and $70,000 in pass-through distributions, an S-Corp saves $9,071 in gross payroll tax. After subtracting $3,080 in lost QBI tax savings and $3,050 in payroll, CPA, and state fees, you net +$2,941 per year.
Gross FICA savings
+$9,071
$10,710 S-Corp FICA vs $19,781 LLC SEQBI deduction cost
-$3,080
$14,000 lost QBI at 22% bracketS-Corp fees & state tax
-$3,050
$1,800 CPA/payroll + $1,250 taxes/stateBreak-even profit
$119,183
Min profit to break even at $70,000 salarySide-by-side LLC vs S-Corp annual cost breakdown
| Tax or compliance item | Standard LLC (Schedule C) | S-Corporation (1120-S + W-2) |
|---|---|---|
| Annual net business profit before owner pay | $140,000 | $140,000 |
| Owner W-2 salary subject to FICA payroll tax | $0 | $70,000 |
| Owner pass-through K-1 distribution (FICA-exempt) | $140,000 | $70,000 |
| Social Security tax (12.4% up to $176,100 cap) | $16,032 | $8,680 |
| Medicare tax (2.9% uncapped) | $3,749 | $2,030 |
| Total SE / FICA payroll tax | $19,781 | $10,710 |
| Section 199A QBI deduction reduction tax cost (20% x 22%) | $0 | $3,080 |
| Payroll software, Form 1120-S CPA prep, FUTA/SUTA & state fees | $0 | $3,050 |
| Total annual payroll tax + S-Corp friction cost | $19,781 | $16,840 |
How annual business profit changes S-Corp savings
See how S-Corp savings scale across profit levels at your selected W-2 salary and fee structure:
| Business profit | LLC SE tax | S-Corp FICA | Gross FICA savings | QBI cost + fees | Net S-Corp savings |
|---|---|---|---|---|---|
| $60,000 profit | $8,478 | $9,180 | -$702 | $5,690 | -$6,392 |
| $90,000 profit | $12,717 | $10,710 | +$2,007 | $6,130 | -$4,123 |
| $120,000 profit | $16,955 | $10,710 | +$6,245 | $6,130 | +$115 |
| $140,000 profit | $19,781 | $10,710 | +$9,071 | $6,130 | +$2,941 |
| $180,000 profit | $25,433 | $10,710 | +$14,723 | $6,130 | +$8,593 |
| $250,000 profit | $28,532 | $10,710 | +$17,822 | $6,130 | +$11,692 |
How this calculator works
In a standard single-member LLC (taxed as a sole proprietorship on Schedule C), 92.35% of your net business profit is subject to the 15.3% self-employment tax (12.4% Social Security up to the annual wage cap plus 2.9% Medicare on all profit). When you elect S-Corporation tax status (IRS Form 2553), you split your profit into two buckets: a W-2 salary subject to FICA payroll taxes and a shareholder K-1 distribution that is exempt from Social Security and Medicare taxes.
Why gross FICA savings overstate the true S-Corp benefit
Simple calculators multiply your S-Corp distribution by 15.3% and stop there. In practice, three real-world costs shrink that headline number: first, W-2 wages paid to an S-Corp owner do not qualify for the 20% Section 199A Qualified Business Income (QBI) deduction, which raises your federal income tax by roughly 4.4% to 4.8% of your W-2 salary; second, running payroll and filing a separate corporate Form 1120-S tax return typically adds $1,500 to $2,500 per year; and third, employer FUTA/SUTA unemployment taxes and state S-Corp franchise taxes (such as California's $800 minimum or 1.5% entity tax) take another bite.
Frequently asked questions
What does the IRS consider a reasonable S-Corp salary?
The IRS requires shareholder-employees to pay themselves what a comparable business would pay for similar services based on duties, hours worked, training, and industry benchmarks. Setting an artificially low salary to avoid FICA is a top IRS audit trigger that can result in reclassifying distributions as taxable wages plus penalties.
At what profit level does an S-Corp usually start paying off?
Once you factor in CPA fees for Form 1120-S, payroll software, unemployment taxes, and the reduced Section 199A QBI deduction on W-2 wages, most solo service businesses need at least $100,000 to $120,000 in consistent annual net profit before an S-Corp produces meaningful net savings.
How does a W-2 job elsewhere affect S-Corp tax savings?
If you already earn above the Social Security wage base ($176,100) at a separate W-2 day job, you have already maxed out the 12.4% Social Security tax for the year. In that case, an S-Corp only saves the 2.9% Medicare tax on distributions, which rarely outweighs S-Corp administrative costs and lost QBI deductions.
Benchmark sources and dates
Starting assumptions are example benchmarks, not binding quotes. Change any input to match your own bills or offers.
| Assumption / Input | Starting value | Source | Checked |
|---|---|---|---|
| Self-employment tax and FICA rates plus Social Security wage base | 15.3% combined FICA (12.4% Social Security up to $176,100 wage base + 2.9% Medicare) on 92.35% of LLC net profit | Internal Revenue Service Self-Employment Tax and Social Security Contribution and Benefit Base | 2026-04-01 |
| S-Corp reasonable owner W-2 compensation rules | $70,000 W-2 salary on $140,000 net business profit | Internal Revenue Service S Corporation Employees, Shareholders and Corporate Officers | 2026-04-01 |
| Qualified Business Income (Section 199A) 20% deduction | 20% QBI deduction rate at 22% marginal federal bracket | Internal Revenue Service Qualified Business Income Deduction | 2026-04-01 |
| S-Corp payroll software, Form 1120-S CPA preparation, and state franchise fees | $1,800/yr payroll and Form 1120-S tax prep, $450/yr FUTA/SUTA/workers comp, $800/yr state entity fee | U.S. Small Business Administration Choose a Business Structure and State Franchise Tax Benchmarks | 2026-04-01 |