🧾 S Corp Salary & Savings Calculator
Enter your numbers to see a reasonable salary split, your real tax savings, and any audit-risk warnings.
How the S Corp Tax Savings Actually Work
When you're a sole proprietor or single-member LLC, all of your net profit is subject to self-employment (SE) tax — 15.3% on 92.35% of your net earnings, covering Social Security and Medicare. Electing S Corp status lets you split your income into two buckets: a salary (subject to regular payroll FICA taxes) and a distribution (which is not subject to SE tax or FICA at all). The lower your salary relative to your total profit, the more you save — but only within limits the IRS actually enforces.
Reasonable Compensation — The Part That Actually Matters
The IRS requires S Corp owner-employees to pay themselves a "reasonable salary" for the work they actually do before taking any distributions. There is no fixed percentage or dollar threshold in the tax code — but the IRS and courts have repeatedly pointed to the same factors when reasonable compensation is challenged:
- Training and experience — what your background and qualifications are worth in the market
- Duties and responsibilities — what you actually do day to day in the business
- Time and effort devoted to the business — full-time vs. part-time involvement
- What comparable businesses pay for similar services — the going rate for your role in your industry and area
- Dividend history and the timing/manner of paying bonuses to key people
Salary set unreasonably low relative to distributions is one of the most common triggers for an IRS challenge of S Corp status — the agency can reclassify distributions as wages and assess back payroll taxes, penalties, and interest.
| Business Type | Typical Starting Range | Why |
|---|---|---|
| Service / Consulting | 60%–90% of profit | Your labor is nearly the entire value driver |
| Mixed / Retail / Product | 40%–60% of profit | Profit comes from both your labor and the business itself |
| Capital-Intensive / Passive-Leaning | 20%–40% of profit | More profit is driven by capital, inventory, or systems than your direct labor |
These are starting points for a conversation with a CPA, not IRS-published thresholds — actual reasonable compensation is fact-specific to your role and industry.
The Real Cost of Running an S Corp
S Corp election adds real, recurring costs that eat into the SE tax savings — this calculator nets them out rather than just showing the gross number:
- Payroll processing — running yourself as a W-2 employee requires a payroll service (typically $30–$100/month)
- Additional tax preparation — S Corps file a separate business return (Form 1120-S) plus a W-2/1099, which usually costs more than a simple Schedule C
- State-specific fees — some states charge an S Corp filing fee or minimum franchise tax regardless of profit
Your Numbers Are Completely Private
Every number you enter — your profit, salary, and costs — is processed entirely in your browser. Nothing is ever transmitted to a server, stored in a database, or shared with anyone. Your business's financial information belongs to you alone.
This calculator is for educational and planning purposes only. It does not determine your legally reasonable salary, does not file any election, and does not constitute tax or legal advice.
- Reasonable compensation is fact-specific — this tool's suggested ranges are general starting points, not IRS-published rules.
- This calculator does not include the 0.9% Additional Medicare Tax that applies above certain income thresholds.
- State income tax, franchise tax, and filing fees vary — confirm your state's actual figures before deciding.
- S Corp status must be properly elected with the IRS (Form 2553) and maintained with corporate formalities.
Consult a licensed CPA or tax attorney before electing S Corp status or setting your official salary.