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Run the numbers

Updated for tax year 2026

Find the exact profit where an S-corp election starts paying for itself.

Most S-corp calculators multiply your profit by 15.3% and call the difference savings. That answer is wrong often enough to matter. This one models the §199A wage limitation, the entity-level taxes eleven jurisdictions charge S corporations, and what payroll actually costs — then tells you when not to elect.

51
states and DC modelled
§199A
wage limitation included
2026
rates from Rev. Proc. 2025-32
$0
to use, no sign-up

Your situation

Revenue less ordinary business expenses, before paying yourself anything.

Suggested

The IRS requires wages reflecting the fair market value of your work. There is no safe harbour.

Consulting, law, health, accounting, financial services, performing arts or athletics.

Verdict for tax year 2026

Electing looks worth it

On $150,000 of net profit, the S election leaves you $4,563 better off per year after payroll, tax preparation and every state-level tax we can find — about 3.0% of profit.

Net annual saving

$4,563

Breaks even at $40,500 of profit

What your salary choice is worth

Below the §199A threshold this curve only ever rises as salary falls, so the limit is legal rather than mathematical. The best defensible figure here is $45,000, worth $10,153 a year.

Hard to defend
Annual savings Your salary Suggested

Where the election starts to pay

Profit on the horizontal axis, annual saving on the vertical, holding your state, filing status and costs fixed and setting a reasonable salary at each level.

Breaks even at $41k
Election pays Election costs Your profit

Line by line

Line-by-line comparison of staying a sole proprietor against electing S corporation status, for the same business profit.
Line itemSole prop / LLCS corporationDifference
Owner W-2 wagesSubject to payroll tax, and the figure the §199A wage limitation is measured against.$0$75,000+$75,000
Profit taken as distributionsNot subject to self-employment or payroll tax.$150,000$67,361−$82,640
Social Security & Medicare taxSelf-employment tax on the left; both halves of FICA plus FUTA on the right.$21,194$11,517−$9,677
§199A deductionA deduction, so more is better. Wages are not qualified business income, but they are what satisfies the wage limitation at higher incomes.$24,661$13,472−$11,188
Federal income tax$16,413$19,667+$3,254
Compliance costPayroll service, the incremental cost of an 1120-S over a Schedule C, and recurring state fees.$0$1,860+$1,860
Total cost of this structure$37,608$33,044−$4,563
Kept by you$112,392$116,956+$4,563

Both columns start from the same $150,000 of profit. See the methodology for every rule and rate used.

What electing actually requires

An S corporation is not a filing you make once. It is a payroll obligation. You must pay yourself as an employee, withhold and remit payroll tax on a schedule, file Form 941 each quarter, issue yourself a W-2 in January, and file an 1120-S with a Schedule K-1 by 15 March. Missing the payroll requirement is what turns the election into a liability.

To elect for a tax year you generally file Form 2553 within two months and fifteen days of the start of that year — 15 March for a calendar-year business — though late relief under Rev. Proc. 2013-30 is routinely granted with a reasonable cause statement.

Gusto

Runs the payroll an S corporation is required to run, files the 941s and W-2 automatically, and handles the S-corp owner health insurance reporting that trips most people up in December.

From about $55/month for a single owner-employee

OnPay

Flat-rate payroll with S-corp support included rather than sold as an upgrade. Usually the cheapest credible option for a one-person corporation.

$40/month plus $6 per person

Northwest Registered Agent

Forms the entity and acts as registered agent without the upsell funnel. They do not sell your data, which is not a given in this category.

$39 plus state fee, registered agent $125/year

ZenBusiness

Handles LLC formation and will file the Form 2553 S election alongside it, which saves a round trip if you are starting from nothing.

Free formation tier plus state fee; S-corp filing is an add-on

These links pay us a commission if you sign up. It costs you nothing and it has no effect on any number above — the recommendation is driven entirely by your inputs, and when the arithmetic says do not elect, we say do not elect.

Three things the simple calculators get wrong

01

Wages destroy your §199A deduction

Every dollar you move from distributions into salary is a dollar of qualified business income you no longer have, and the deduction is worth 20% of it. A calculator that ignores this overstates your saving by thousands. The twist is that above roughly $202,000 of taxable income the deduction is capped at half your W-2 wages — so a sole proprietor, paying no wages at all, can lose it entirely while an S corporation keeps it. The effect runs both directions, and you need both.

How the wage trap works →
02

Your state may tax the corporation

California charges S corporations 1.5% of net income. Illinois adds a 1.5% replacement tax. District of Columbia, New Hampshire, Tennessee and New York City decline to recognise the federal election at all and tax the entity as though you had never filed. On a $200,000 profit in New York City that single line can erase the entire federal saving.

See every state →
03

A zero salary is not a strategy

Purely arithmetically, the optimal salary below the §199A threshold is almost always zero — every dollar out of wages saves 15.3%. That answer is correct and would be malpractice to give you. Reasonable compensation is a facts-and-circumstances test and nominal salaries are the most reliable way to have distributions recharacterised as wages with penalties attached. This tool refuses to recommend below 30% of profit and shades the rest of the curve.

How to set a defensible salary →

Common questions

At what profit does an S-corp election usually start to pay?

For most solo owners in a state with no entity-level tax, the crossover sits between roughly $40,000 and $60,000 of net profit once payroll and the extra return are paid for.

It moves a long way with geography. California's 1.5% franchise tax pushes it up a few thousand; New York City's 8.85% General Corporation Tax can push it past $130,000. Run your own numbers rather than trusting a rule of thumb.

How much salary do I have to pay myself?

The law requires reasonable compensation for the services you actually perform, measured at fair market value. There is no statutory percentage and no safe harbour, which is why every honest answer here is a range.

In practice most practitioners defend between 30% and 60% of profit, weighted higher at lower profit levels where nearly all the profit comes from your own labour. Paying nothing, or a token amount, is the most reliable way to have distributions recharacterised as wages with back payroll tax, interest and penalties attached.

Why does my §199A deduction fall when I raise my salary?

W-2 wages are not qualified business income. Moving a dollar of profit into salary takes a dollar out of the QBI base, and the deduction is 20% of that base — so each dollar of extra salary costs about 20 cents of deduction.

Above the 2026 threshold of $201,750 (single) or $403,500 (joint), the opposite force appears: the deduction is capped at 50% of the W-2 wages the business pays. Wages go from being a cost to being the thing that preserves the deduction. Both effects are live at once, which is why the salary curve has a genuine peak at higher incomes.

When is the deadline to elect?

Form 2553 is generally due within two months and fifteen days of the start of the tax year the election should take effect — 15 March for a calendar-year business.

Missing it is rarely fatal. Late elections are routinely accepted under Rev. Proc. 2013-30 if you file within three years and 75 days and attach a reasonable cause statement.

Can I undo the election if it stops making sense?

Yes, but not cheaply. Revoking generally bars you from re-electing for five tax years without IRS consent.

That asymmetry is the reason to judge the decision on a three-year projection rather than a single strong year. A one-off windfall usually does not justify it.

Is this tax advice?

No. This is a calculator. It uses published 2026 federal rules and state schedules and shows its work, but it does not know your facts.

It excludes credits, the alternative minimum tax, multi-state apportionment and most local income taxes, and using it creates no client relationship. Confirm anything material with a CPA or tax attorney before you file.