LLC vs S-corp: when does the election actually pay?

Federal figures read on IRS pages 2026-11-02; state figures read on state sites 2026-11-02. Unverified items are labeled and never added to totals.

Short answer. Electing S-corp status for your LLC saves the 15.3% self-employment tax on the part of your profit you take as distributions instead of salary. It costs you a payroll service, an extra tax return, some state taxes and a smaller QBI deduction. With a 50% salary and about $1,600 a year of added costs, the federal-only break-even in this calculator is roughly $44,000 of profit; a higher salary pushes it up, and your state can move it a lot. Below that, staying a plain LLC usually wins.

Informational only. Not legal or tax advice. This is an estimate built from simplified rules. The model stops at $200,000 of profit because QBI limits and wage-base effects change the answer above that. Have a CPA check your numbers before you elect.

How the math works

As a plain LLC you owe self-employment tax: 12.4% Social Security up to the 2026 wage base of $184,500, plus 2.9% Medicare, on 92.35% of your profit (IRS Topic 554, IRS Topic 751).
As an S-corp you pay the same 15.3% (6.2% + 6.2% + 1.45% + 1.45%) but only on the salary you pay yourself. Distributions above that salary carry no payroll tax.
Income-tax side effect. The 20% QBI deduction applies to profit after your salary, so a salary lowers it (IRS QBI page). We estimate this at the bracket you pick.
Added costs. A payroll service, a Form 1120-S return and your state's extras. The first two are our assumptions, not sourced prices; edit them.

What this calculator does not model

Additional Medicare Tax (0.9% above $200,000 single / $250,000 joint) and the Net Investment Income Tax
Federal and state income-tax brackets (we use the single marginal rate you pick)
QBI limits (specified-service rules, W-2 wage and property limits, the 2026 minimum deduction): we assume the full 20% deduction is available
Health insurance (the S-corp 2% shareholder rules), retirement plan contributions and fringe benefits
State income tax on the owner (same either way for most states) and any local tax not listed
First-year setup: the Form 2553 election, new payroll accounts and state registrations

Reasonable salary and how to elect

The IRS says an S-corporation must pay a shareholder-employee reasonable compensation for their services before non-wage distributions (IRS). To elect, file Form 2553 no more than 2 months and 15 days after the start of the tax year it takes effect, or at any time during the prior year. Some states need their own election or form; the state notes below say which.

State notes and sources

Do you even need an LLC yet?

The S-corp question comes after the LLC question. The calculator takes your answers and returns a verdict, your numbers and a dated checklist.

Run the LLC calculator

Frequently asked

When does an S-corp election start saving money?

When the payroll tax you avoid on the part of your profit you take as distributions is bigger than what the election adds: payroll service, an extra tax return, state taxes and the income-tax effect of a lower QBI deduction. With a 50% salary and about $1,600 a year of added costs the federal-only break-even in this calculator is roughly $44,000 of profit. Pay yourself a higher salary and it moves up. Your state can move it a lot.

What is a reasonable salary for an S-corp owner?

The IRS says an S-corporation must pay a shareholder-employee reasonable compensation for the services they provide before taking non-wage distributions. It gives no formula. The calculator lets you choose a share of profit so you can see how sensitive the answer is. A CPA should set the number you can defend.

When do I have to elect S-corp status?

Form 2553 is due no more than 2 months and 15 days after the start of the tax year the election is to take effect, or any time during the prior tax year. The IRS describes late-election relief under Rev. Proc. 2013-30 if you miss it.

Does an S-corp election change my state taxes?

Often, yes. California adds a 1.5% tax with an $800 minimum, Illinois adds a 1.5% replacement tax, New York adds a small fixed dollar minimum tax and New York City taxes S-corporations under the General Corporation Tax instead of the Unincorporated Business Tax. Texas franchise tax and Washington B&O tax are the same either way, and Florida adds nothing unless the S-corp pays federal tax at the entity level. The page lists every figure with its source and marks what is unverified.

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