Estimate the federal tax difference between operating as a Schedule C sole proprietor and electing S-Corporation status. This calculator estimates federal tax effects only.
Business revenue minus ordinary business expenses, before owner salary and employer payroll taxes.
Reasonable compensation depends on your duties, experience, time spent working in the business, comparable wages, and how the business generates its revenue. This calculator does not determine reasonable compensation.
This calculator provides a simplified estimate of modeled federal income and SE/FICA tax differences for educational purposes and is not tax advice. It does not model FUTA, SUTA, state entity taxes, payroll provider fees, the federal qualified tip deduction, self-employed health insurance deductions, qualified retirement contributions, tax credits, capital gains, itemized deductions, basis limitations, or other taxpayer specific items. These excluded costs may be incorporated using the Estimated Annual S-Corp Compliance Costs input. Results may differ materially based on your complete tax situation.
Enter your net business profit and estimated salary, then click calculate to see your estimated federal tax comparison.
This calculator provides a federal estimate only. Your actual result depends on state taxes, deductions, retirement contributions, health insurance, and your specific situation. We can run the complete analysis for you.
As a sole proprietor or single member LLC, your net business profit is subject to self-employment tax under Schedule SE. The IRS applies a 92.35% factor to your net profit to determine net earnings from self-employment, then assesses 12.4% for Social Security (limited by the $184,500 wage base in 2026) and 2.9% for Medicare with no cap. If your combined earnings exceed $200,000 (single), an additional 0.9% Medicare tax applies.
When you elect S-Corporation status, you pay yourself a W-2 salary subject to payroll taxes (6.2% employee + 6.2% employer for Social Security, 1.45% + 1.45% for Medicare). After deducting your salary and employer payroll taxes from business profit, the remaining pass-through business income generally flows to you on Schedule K-1. That pass-through business income is generally not subject to self-employment tax, although the shareholder must receive reasonable compensation for services performed.
However, there is a tradeoff. Under Section 199A, you may be eligible for a Qualified Business Income deduction of up to 20% of your QBI. For a Schedule C business, QBI is generally your net profit minus the deductible half of self-employment tax. For an S-Corporation, shareholder W-2 wages are not qualified business income, so your QBI is limited to the pass-through portion only. This means the S-Corp QBI deduction is typically smaller than the Schedule C QBI deduction.
The calculator above accounts for this tradeoff by computing both the payroll tax savings and the QBI deduction difference, then showing you the net federal tax benefit after estimated compliance costs.
Your W-2 salary must first satisfy the reasonable compensation requirement. The calculator shows how the tax result changes based on the salary entered. It does not determine what your reasonable compensation should be.
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