The S-corp election saves money by letting you take part of your profit as distributions, which escape the 15.3% Social Security & Medicare tax. This tool estimates that saving for a California business in 2026 — net of California’s 1.5% S-corp tax — and finds the profit level where the election starts to pay off. It models the payroll-tax piece only (not income tax or the QBI deduction); move the sliders to see your numbers.
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Estimated annual S-corp saving
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| Social Security & Medicare + CA | Default | S-corp |
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How it’s calculated (and the figures behind it)
- Default (sole proprietor / LLC): self-employment tax of 15.3% — 12.4% Social Security on net earnings up to the wage base, plus 2.9% Medicare on all of it — applied to 92.35% of profit, per IRS and Schedule SE.
- S-corp: the same Social Security & Medicare rates apply only to your W-2 salary; the remaining profit, taken as distributions, pays none. That gap is the saving.
- 0.9% Additional Medicare applies above $200,000 (single/HoH), $250,000 (married filing jointly), or $125,000 (married filing separately), per IRS Topic 560.
- California, default LLC: the $800 annual tax plus the LLC fee on gross receipts ($900 / $2,500 / $6,000 / $11,790 at $250k / $500k / $1M / $5M), per FTB Form 3536.
- California, S-corp: a 1.5% franchise tax on net income, with the same $800 minimum.
- SSA — 2026 Social Security wage base ($184,500)
- IRS — Self-employment tax (15.3%, 92.35% factor)
- IRS Topic 751 — Social Security & Medicare withholding rates
- IRS Topic 560 — Additional Medicare Tax (0.9%)
- IRS — Reasonable compensation for S-corp owners
- CA FTB — LLC annual tax & fee
- CA FTB — S corporations (1.5% franchise tax)
This calculator estimates Social Security & Medicare (self-employment) tax and California entity-level taxes only. It does not model federal or California income tax, the qualified business income (QBI) deduction, the income-tax benefit of the self-employment-tax deduction, retirement contributions, or health insurance — all of which affect the real answer. It is general information, not tax advice for your situation. A “reasonable” salary must reflect market pay for your work; setting it too low is a known audit trigger. Talk to a CPA before electing.