LLC to S-Corp Election Tax Savings 2026 Calculator
Calculate S-Corp election tax savings 2026 — the 15.3% SE tax avoided on the distribution portion of net income, minus S-Corp setup and payroll costs, plus the break-even revenue where the election starts to pay.
| LLC SE tax (15.3% up to $176,100, 2.9% above) | — |
| S-Corp payroll tax on salary | — |
| Gross SE tax saved on distribution | — |
| S-Corp annual cost | — |
| Distribution portion (no SE tax) | — |
| Net first-year savings | — |
| Net ongoing yearly savings | — |
An LLC taxed as a sole proprietor pays 15.3% self-employment tax on every dollar of profit up to the 2026 Social Security wage base ($176,100), then 2.9% Medicare above. Electing S-Corp status on IRS Form 2553 lets owners split profit into reasonable W-2 wages plus distributions — and the distribution portion escapes the 15.3% SE tax under IRC §1402(a) and Treas. Reg. §1.1366-1.
How the S-Corp Election Saves SE Tax
File Form 2553 within 2 months and 15 days of the start of the tax year you want the election to take effect (Rev. Proc. 2013-30 grants late-election relief in many cases). The S-Corp issues you a W-2 for your reasonable salary, paying 7.65% employer FICA + 7.65% employee FICA = 15.3% on that wage. The remaining profit flows through Schedule K-1 as a distribution — no SE tax, no FICA.
The Break-even Math
S-Corp setup costs $500-$1,000 one-time, plus $600-$1,200 payroll service, $800-$1,500 extra tax prep (1120-S), and state minimum franchise fees ($800 in CA, $0 in most states). Break-even is usually around $40,000-$60,000 of net profit above the reasonable salary. Below that, the costs eat the savings.
The Reasonable-Salary Trap
The savings only work if your salary is defensible under IRS Fact Sheet 2008-25. Auditors use BLS OES medians plus the nine-factor Watson test. Taking $20,000 salary on $200,000 net is asking for recharacterization, back tax, plus 20-25% accuracy penalty (IRC §6662). Set the wage at the BLS median for your occupation and run real payroll.
Watch Out For
(1) State conformity — California taxes S-Corps at 1.5% (min $800). New Hampshire and TN ignore the election. (2) QBI haircut — wages reduce QBI deduction by reducing pass-through income. Run the QBI W-2 wage limit alongside this. (3) Health insurance — S-Corp 2% owners pay self-employed health insurance through payroll (added to W-2 box 1, deductible above-the-line). Last updated May 2026.