S-Corp Salary Optimiser (Pro) United States

Many profitable small businesses elect S-corporation status to cut payroll tax. In an S-corp, only the salary you pay yourself is subject to Social Security and Medicare tax, and the rest of the profit passes through as a distribution free of those taxes. A sole proprietor pays self-employment tax on nearly all net profit. The S-Corp Salary Optimiser measures that gap and runs a range of salary levels so you can choose a figure that is both defensible and tax-efficient. It is a Pro tool, calculated on our server.

How the saving works

As a sole proprietor, your net profit is first reduced to 92.35% of its value to form the self-employment tax base, which is then taxed at a combined 15.3%: 12.4% for Social Security up to the annual wage base, plus 2.9% for Medicare with no ceiling.

As an S-corp owner, the same 15.3% combined FICA rate applies, but only to the W-2 salary you run through payroll. The profit left after your salary is paid out as a distribution, which carries no Social Security or Medicare tax. The tool computes the FICA on your chosen salary and the self-employment tax a sole proprietor would owe on the whole profit, and reports the difference as your FICA saving.

Why the salary has to be reasonable

The IRS requires an owner who actively works in an S-corp to take reasonable compensation, a salary comparable to what the role would earn on the open market, before drawing distributions. Set the salary at zero or implausibly low, and the IRS can reclassify distributions as wages, assess the payroll tax you avoided, and add penalties and interest.

So the optimiser shows a schedule instead of one number: the FICA cost and the saving at salaries from 40,000 to $100,000. You judge which figure you could defend if questioned, using industry salary surveys, your hours, your responsibilities, and the profit the business could earn without you.

Reading the scenario schedule

Each row pairs a candidate salary with the S-corp FICA at that salary and the saving compared with operating as a sole proprietor. As the salary rises toward your total profit, the S-corp FICA climbs and the saving shrinks; when salary nearly equals profit, almost everything is taxed as wages and the S-corp offers little payroll-tax advantage.

Rows above your entered profit are skipped, since you cannot pay yourself a salary larger than the business earned. If your profit is modest you will see fewer rows, a sign that the S-corp approach has limited room to save tax.

A worked example

Suppose your business nets $150,000 in profit for the year. As a sole proprietor, the self-employment tax base is 92.35% of that, or $138,525. Social Security at 12.4% is about $17,177 and Medicare at 2.9% about $4,017, for a total self-employment tax near $21,194.

Now elect S-corp status and pay yourself a reasonable salary of $70,000. The combined FICA at 15.3% is $8,680 of Social Security and $2,030 of Medicare, $10,710 in total. The remaining $80,000 of profit is distributed free of payroll tax. The saving is about 21,194 minus 10,710, or roughly $10,484 for the year. The schedule shows how that saving grows with a lower salary and shrinks with a higher one.

Assumptions and limitations

This is a planning estimate, not tax advice. It uses the 2026 Social Security and Medicare rates and the Social Security wage base, stored as parameters taken from the IRS and SSA and reviewed each year. It models payroll tax only. It does not include federal or state income tax, the Additional Medicare Tax on high earners, the qualified business income deduction, unemployment taxes, the cost of running payroll, or the effect of a lower salary on retirement plans and Social Security benefits. It cannot judge what salary is reasonable for your role, which depends on facts about your work and market pay. Discuss the result with a CPA before taking a filing position.

About This S Corp Salary Optimiser

Use this S corp salary optimiser to get an instant, accurate estimate. The figures follow official IRS guidance and every rate and threshold is kept up to date for 2026. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.