How the S corp savings work
A default LLC owner pays 15.3% SE tax on almost all profit. An S corp owner pays payroll tax only on a reasonable salary; remaining profit is distributed without Social Security or Medicare tax.
LLC tax = Profit × 92.35% × 15.3% (SS capped at $184,500)
S corp tax = Salary × 15.3% (SS capped)
Savings = LLC tax − S corp tax − Extra costs
S corp tax = Salary × 15.3% (SS capped)
Savings = LLC tax − S corp tax − Extra costs
Example
$120,000 profit as an LLC: about $16,955 SE tax. As an S corp with a $60,000 salary: $9,180 payroll tax plus $2,500 in extra costs, saving roughly $5,275 a year.
Before you elect
- Salary must be reasonable. The IRS can reclassify distributions if salary is too low.
- Low profit rarely benefits. Extra costs can exceed the savings.
- Income tax changes too. QBI and deductions shift. A CPA can model the full picture.
Frequently asked questions
What is a reasonable salary?
Roughly what you'd pay someone else to do your job. There's no fixed percentage.
Is this tax advice?
No. It's a rough estimate of payroll tax differences only.
Can a single-member LLC be an S corp?
Yes. An eligible LLC can elect S corp tax treatment with Form 2553.
Results are estimates for planning and are not financial, tax or legal advice. See our methodology.