Total business profit before owner compensation.
IRS requires "reasonable compensation" for services performed. Remainder is taken as distribution.
Your Results
Enter S-Corp income and salary split to compare.
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What This Calculator Does
This S-Corp salary vs. distribution calculator helps S-Corp owners find the optimal split between W-2 salary (subject to FICA taxes) and shareholder distributions (not subject to FICA) to minimize total self-employment tax. It compares the S-Corp structure to taking all income as salary, shows the FICA savings, applies 2026 federal income tax brackets with the Section 199A QBI deduction, and displays the net after-tax income under each scenario.
The Formula
In an S-Corp, the owner-employee pays FICA taxes (Social Security at 6.2% plus Medicare at 1.45%, both employer and employee shares) only on the salary portion. Distributions are not subject to FICA. However, the IRS requires S-Corp owners to pay themselves a "reasonable salary" for services performed before taking distributions. All S-Corp income (salary plus distributions) is subject to federal and state income tax. The Section 199A qualified business income (QBI) deduction allows a deduction of up to 20% of the distribution portion, subject to the W-2 wage limitation.
Step-by-Step Example
Enter total S-Corp net income
Total business profit before owner compensation: $150,000.
Set reasonable salary
$70,000 salary (47% of income). Remaining $80,000 taken as distribution.
Compare to all-salary scenario
All-salary FICA: $22,950. S-Corp FICA: $10,710. Annual savings: $12,240.
Review net after all taxes
S-Corp total tax: $36,860. Net: $113,140. All-salary total tax: $48,100. Net: $101,900.
Real-World Use Cases
S-Corp Election Decision
Determine whether electing S-Corp status would save enough in FICA taxes to justify the additional accounting and payroll costs (typically $2,000 to $5,000/year).
Reasonable Compensation Planning
Find the salary level that minimizes FICA while remaining defensible under IRS reasonable compensation standards.
Tax Planning Scenarios
Model different salary and distribution splits to optimize total tax burden for the current year.
Common Mistakes to Avoid
Setting the salary too low. The IRS actively audits S-Corp owners who pay themselves unreasonably low salaries. Salary should reflect what a comparable employee would earn for similar work in your industry and region.
Not accounting for payroll tax costs. The employer share of FICA (7.65%) is a business expense that reduces net income. Both employer and employee shares must be included in the comparison.
Forgetting the QBI deduction limitation. The Section 199A deduction is limited to the greater of 50% of W-2 wages or 25% of W-2 wages plus 2.5% of qualified property. Setting salary too low can limit the QBI deduction.
Not considering the cost of running S-Corp payroll. Quarterly payroll filings, W-2 preparation, payroll software or service fees, and additional accounting costs typically run $2,000 to $5,000 annually.
Frequently Asked Questions
Accuracy and Disclaimer
S-Corp tax planning involves complex IRS rules regarding reasonable compensation, employment taxes, and the Section 199A deduction. This calculator provides estimates for comparison purposes. Actual tax savings depend on your specific business operations, industry, and individual tax situation. The QBI deduction may change after 2025 depending on congressional action. Consult a licensed CPA or tax attorney for S-Corp tax planning advice.
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