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S corp tax savings calculator

Compare federal tax as a sole proprietor with an S corporation that pays you a reasonable salary.

Updated · Tax year 2026 · By Volkan Eren · Sources & method

What your Schedule C net profit would be as a sole proprietor.

Must be reasonable compensation for the work you do. The IRS can reclassify distributions as wages.

Payroll service, business tax return, state fees.

Consulting, law, accounting, health, financial services. Only matters above $201,750 of taxable income ($403,500 married).

Estimated yearly federal savings with an S corp

$3,512

Federal tax of $28,462 as a sole proprietor vs $22,950 as an S corp, after $2,000 of extra costs. Payroll tax applies only to the $60,000 salary, not the $53,410 distribution.

Sole proprietor vs S corporation federal taxes
Federal, 2026Sole proprietorS corp
Self-employment / payroll tax$16,955$9,180
Additional Medicare Tax$0$0
Federal income tax$11,506$13,770
QBI deduction used$19,084$10,682
Total federal tax$28,462$22,950

Federal only: state income tax and state S corp taxes (for example California’s 1.5% franchise tax, $800 minimum) are not included. Health insurance and retirement are left out of both sides. Not tax advice; an S corp election (Form 2553) has legal and payroll obligations.

How much can an S corp save a freelancer?

On $120,000 of profit with a $60,000 salary, an S corp cuts 2026 federal tax from $28,462 to $22,950. After $2,000 of extra costs that is about $3,512 a year, because payroll tax applies only to the salary. State taxes and fees can change the answer.

The tax side of choosing a business structure is in LLC vs sole proprietor. An S corp election is made on IRS Form 2553 and brings payroll filings; talk to a CPA or Enrolled Agent before electing.

Frequently asked questions

How does an S corp save self-employment tax?

As a sole proprietor, 92.35% of net profit is subject to 15.3% self-employment tax (the 12.4% Social Security part stops at the yearly wage base). In an S corp, payroll tax applies only to the salary you pay yourself; profit you take as a distribution is not subject to Social Security and Medicare tax.

At what profit does an S corp make sense?

It depends on the salary, your state and the extra costs. With this page’s assumptions the S corp saves about $214 a year at $50,000 of profit and saves about $3,512 at $120,000. Run your own numbers above.

What is reasonable compensation?

The IRS requires an S corporation to pay a shareholder who works in the business reasonable compensation for services before taking non-wage distributions. The IRS looks at factors such as your duties, time devoted to the business and what comparable businesses pay for similar services. Setting it too low can lead the IRS to reclassify distributions as wages.

Does an S corp change the QBI deduction?

Yes. Your salary is not qualified business income, so the 20% QBI deduction applies only to the distribution. At higher incomes the W-2 wages the S corp pays can raise the QBI limit. The calculator includes both effects.

Estimates for educational and planning purposes only. HourFloor does not provide tax, legal or financial advice. Verify your numbers with a qualified tax professional.

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