LLC vs S-Corp Self-Employment Tax Decision Calculator
Compute the net-income threshold at which an S-Corp election saves more in self-employment tax than the compliance overhead costs (payroll setup, additional filings, reasonable salary administration, state-level franchise tax in some states). The S-Corp self-employment-tax savings are real but smaller than the LinkedIn-influencer pitch suggests once you account for the full overhead. Cited to IRC §1366, §3121, IRS Rev. Proc. 2013-30 (late S-Corp election relief).
| Scenario | Line item | Amount |
|---|---|---|
| LLC (sole prop) | Self-employment tax | $21,194 |
| S-Corp | FICA on salary | $9,180 |
| + Compliance | $2,000 | |
| + Franchise tax | $0 | |
| S-Corp total overhead | $11,180 | |
- Distribution (SE-free)
- $90,000
- S-Corp FICA on salary
- $9,180
- LLC SE tax
- $21,194
Blue = LLC self-employment tax. Orange = total S-Corp cost (FICA on salary + compliance + franchise). The S-Corp scenario only comes out ahead when the blue bar is taller than the orange one.
Distribution = net business income − reasonable salary = $150,000 − $60,000 = $90,000. That distribution is the portion that escapes self-employment / FICA tax under the S-corp election — but only because the $60,000 salary first carried its own FICA. A lower salary increases the SE-tax-free distribution, which is exactly why the IRS requires the salary to be reasonable for the services performed (IRC §3121; Rev. Rul. 74-44).
View the TypeScript implementation on GitHub: packages/calc/src/llc-vs-s-corp.ts · view tests
What this means
An LLC dollar and an S-Corp dollar are taxed differently the moment you elect. As a default single-member LLC, your entire net business income runs through self-employment tax. Elect S-Corp status and the income splits in two: a W-2 reasonable salary that still carries full FICA, and a distribution that escapes SE tax entirely. The gap between those two paths is the savings everyone talks about — but the talk usually stops before the overhead, which is exactly where this calculator picks up.
In my experience, the number that decides this is the reasonable salary, and it’s a constraint, not a free variable. The pitch you see on LinkedIn — “elect S-Corp and pay yourself almost nothing” — quietly assumes the IRS won’t notice. It does. IRC §3121 and Rev. Rul. 74-44 require the salary to be reasonable for the services you perform, and a too-low salary is the single most common way these elections blow up: the IRS re-characterizes the distribution as wages and assesses back-FICA plus penalties. So the savings are real, but they live in the band between a defensible salary and your full income — not in the whole income.
I’ve found the honest framing isn’t “does S-Corp save tax” — at enough income it almost always saves some— it’s “does it save more than it costs.” Payroll service, an extra 1120-S and K-1, quarterly 941s, a state franchise tax in places like California — call it $1,500–$3,000 a year, every year. I’ve seen operators chase a few hundred dollars of SE-tax savings and spend more than that on the compliance to capture it. The arithmetic below is what tells the two apart; the reasonable-salary judgment and your state’s rules are what a CPA or Enrolled Agent is for.
Worked example
A solo consultant with $150,000 of net business income, considering a $60,000 reasonable salary under an S-Corp election, with $2,000 of annual compliance overhead and no state franchise tax.
LLC side. Self-employment tax runs on a 92.35% basis: $150,000 × 0.9235 = $138,525. That’s below the $176,100 Social Security cap, so the full amount is SS-taxed: $138,525 × 12.4% = $17,177.10, plus Medicare $138,525 × 2.9% = $4,017.23. LLC SE tax = $21,194.32.
S-Corp side. FICA applies to the full $60,000 salary (no 0.9235 basis): $60,000 × 12.4% = $7,440 SS + $60,000 × 2.9% = $1,740 Medicare = $9,180 of FICA. Add $2,000 compliance and $0 franchise, and total overhead is $11,180. The remaining $90,000 distribution carries no SE/FICA tax — but only because the $60,000 salary first paid its own.
Result: net annual difference = $21,194.32 − $11,180 = $10,014 — the S-Corp scenario would cost about that much less per year after overhead at this income and salary. But the lever is the salary the influencer pitch ignores: raise the reasonable salary to $120,000 and the FICA alone climbs to ~$16,344, narrowing the gap sharply; push net income down to $45,000 and the $2,000 overhead actually exceeds the SE-tax savings, flipping the sign negative. Same election, different facts — the arithmetic, not the slogan, has to drive this call. This is an estimate of federal SE/FICA tax only, not tax advice.
Frequently asked questions
The information and tools on this website are for general educational purposes only and do not constitute financial, investment, legal, or tax advice. Consult a licensed professional for decisions specific to your situation.