Tax Savings Calculator
See how much you could save in self-employment taxes by forming an S Corporation
For example, you could pay yourself 70% of the above as salary and pay the rest as a distribution
How S-Corp Tax Savings Work
What is Self-Employment Tax?
Self-employment tax is the Social Security and Medicare tax that self-employed individuals pay. The total rate is 15.3%, broken down as:
- 12.4% for Social Security (on earnings up to $184,500)
- 2.9% for Medicare (on all earnings, no cap)
As a sole proprietor, you pay SE tax on 92.35% of your net business income — this is the standard IRS calculation.
How S-Corps Reduce Your Tax
When you form an S Corporation, you split your business income into two categories:
- Salary — subject to self-employment tax
- Distributions — NOT subject to self-employment tax
By paying yourself a reasonable salary and taking the rest as distributions, you can significantly reduce the amount subject to the 15.3% SE tax.
Worked Example: $150,000 in Business Income
| Item | Amount |
|---|---|
| Business Income | $150,000 |
| As a Sole Proprietor | |
| SE taxable income (92.35%) | $138,525 |
| Social Security tax (12.4%) | $17,177 |
| Medicare tax (2.9%) | $4,017 |
| Total SE Tax | $21,194 |
| As an S Corporation (60% salary) | |
| Salary (subject to SE tax) | $90,000 |
| Distribution (not subject to SE tax) | $60,000 |
| Social Security tax (12.4% of salary) | $11,160 |
| Medicare tax (2.9% of salary) | $2,610 |
| Total SE Tax | $13,770 |
| Your Annual Tax Savings | $7,424 |
Ready to Start Saving?
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