Every rule, rate and assumption

What the calculator compares

Two structures, one business, the same net profit. On the left, a sole proprietorship or single-member LLC where all profit is subject to self-employment tax. On the right, the same business with a federal S election, splitting profit into W-2 wages and distributions. Both columns are charged what they genuinely owe, so the difference falls out rather than being asserted.

Federal rules, tax year 2026

• Income tax brackets and standard deduction from Rev. Proc. 2025-32. Standard deduction: $16,100 single, $32,200 joint, $24,150 head of household.
• Self-employment tax under §1401 on 92.35% of net profit — 12.4% Social Security up to the wage base of $184,500, plus 2.9% Medicare with no cap.
• The §164(f) deduction for half of self-employment tax, correctly excluding the Additional Medicare tax, which is not deductible.
• Additional Medicare tax of 0.9% above $200,000 single and $250,000 joint. Not indexed, and applied to both columns since electing does not avoid it.
• FICA on S-corp wages: 6.2% and 1.45% on each of the employer and employee sides, with Social Security capped at the wage base.
• FUTA at the post-credit rate of 0.6% on the first $7,000 of wages.
• §199A at 20%, with thresholds of $201,750 single and $403,500 joint, phase-in ranges of $75,000 and $150,000 as widened by the OBBBA, the greater-of-50%-wages-or-25%-plus-2.5%-UBIA limitation, full SSTB phase-out, the overall taxable-income cap, and the new $400 minimum deduction.
• Solo 401(k), when enabled: $24,500 elective deferral, $8,000 catch-up at 50 or over, $72,000 total additions limit. Employer contributions are 25% of W-2 wages for an S corporation but 20% of net earnings after half of self-employment tax for a sole proprietor — a real asymmetry that a low salary makes worse.

State and local rules

• Individual income tax for all 50 states and the District of Columbia, using each state's bracket schedule and an approximate standard deduction or equivalent.
• Entity-level taxes on S corporations, which is the line most calculators omit: California's 1.5% franchise tax with its $800 minimum, Illinois' 1.5% replacement tax, and the jurisdictions that decline the federal election altogether.
• New York City's 8.85% General Corporation Tax, applied when the New York City toggle is on, plus the city resident income tax.
• Flat annual LLC taxes, such as California's $800, are charged to both columns, because you owe them whether or not you elect. Only the genuine differential shows up as a cost of electing.

The salary floor

Left unconstrained, the arithmetically optimal salary below the §199A threshold is almost always zero. That answer is correct and irresponsible, so the optimiser will not search below 30% of profit and the salary chart hatches the region beneath it. Reasonable compensation is a facts-and-circumstances test with no safe harbour, and this floor is a guardrail rather than a legal opinion. More here.

What is deliberately not modelled

The honest limits. Any of these could move your answer, and several could reverse it:

• Tax credits of any kind, and the alternative minimum tax.
• Local income taxes outside New York City — Ohio and Pennsylvania municipalities, Maryland counties, Michigan cities, Indiana counties, the Portland-area taxes and others are real and can be significant.
• Multi-state apportionment, nexus, or operating in more than one state.
• Capital gains, dividends and other income taxed at preferential rates, which affect the §199A overall limitation.
• Self-employed health insurance premiums, which reduce QBI and are treated differently for a more-than-2% S-corp shareholder.
• Qualified property, so the 2.5% UBIA element of the wage limitation is present in the code but effectively zero for the service businesses this tool is aimed at.
• State-specific pass-through entity taxes (PTET) elected as a SALT cap workaround, which are common and can favour the S corporation.
• Anything about your actual facts, which is the largest omission of all.

Rounding and precision

Calculations run at full floating-point precision and are rounded only for display, so columns may differ by a dollar from what you would get by adding the rounded figures yourself. Break-even is found by bisection and reported to the nearest $500, because precision beyond that would imply a confidence the underlying assumptions do not support.

Corrections

Tax rules change and state schedules get revised. If something here is wrong, it is worth fixing — the whole value of this tool is that its arithmetic is right.