How much tax can an S-corp save on self-employment?

A sole proprietor with $200K net income pays $14,130 SE tax on the full amount. An S-corp owner paying $80K salary and $120K distribution saves FICA on the $120K distribution — roughly $9,180 in FICA savings, minus S-corp formation and administration costs.

What is a reasonable salary for S-corp purposes?

What a similar role would pay in the market. The IRS scrutinizes very low salaries relative to profits. Industry median compensation for the services performed is the safest benchmark.

When does forming an S-corp NOT make sense?

For net profits under $40,000–$50,000, the administrative cost of S-corp election (payroll, bookkeeping, separate tax return) typically exceeds the FICA savings. Rule of thumb: S-corp saves money above $50,000 annual net profit.

S-Corp Salary vs Distribution Tax Savings

How It Works

Calculate FICA/SE tax savings from paying a reasonable salary and taking remaining S-corp profit as a distribution. Shows the optimal salary split and annual tax savings

Each component has a specific meaning:

Paying a reasonable salary — The paying a reasonable salary recorded for the scenario being assessed.
Taking remaining S-corp profit as a distribution — The taking remaining s-corp profit as a distribution recorded for the scenario being assessed.

Note: Interpret the s-corp salary vs distribution result against the thresholds and context described above.

How to Use

Enter the paying a reasonable salary, taking remaining S-corp profit as a distribution for the scenario you are assessing. Calculate FICA/SE tax savings from paying a reasonable salary and taking remaining S-corp profit as a distribution. Shows the optimal salary split and annual tax savings. Use the s-corp salary vs distribution result to inform your calculation.

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