I have a problem with almost every S corp vs LLC article I read. They tell you an S corp saves self-employment tax, quote a break-even income, and stop. The break-even numbers don't even agree with each other. I've seen $50,000, $60,000 and $80,000 from sources that all sound sure of themselves.
They disagree because the answer depends on the salary you pay yourself, and because most of them skip the part of the math that works against you. So here is the whole calculation for 2026, with the cases where the S corp loses.
Every number below is federal only. It assumes one owner, one business, no other income, the standard deduction, and $2,500 a year in added cost to run the S corp. You can change all of that in our free S corp tax calculator.
Is this really S corp vs LLC?
Mostly it's a comparison between two ways of taxing the same LLC. An LLC is a legal structure under state law. An S corp is a federal tax election.
By default the IRS treats a one-owner LLC as part of the owner's own tax return, the same as a sole proprietor. An LLC with two or more members is taxed as a partnership unless it elects otherwise. Either one can elect S corporation treatment by filing Form 2553, and the LLC itself stays in place.
Your LLC either keeps its default treatment or makes the election. The rest of this post prices both.
How is an LLC taxed without the election?
All of your profit lands on your personal return, and you pay two taxes on it.
The first is self-employment tax. The IRS sets the rate at 12.4% for Social Security plus 2.9% for Medicare, applied to 92.35% of your net earnings. The Social Security part stops at the wage base, which is $184,500 for 2026.
The second is income tax. Two deductions soften it. You deduct half of your self-employment tax, and you may get the qualified business income deduction, which is up to 20% of the profit.
Take a single consultant with $150,000 of profit in 2026:
| LLC, default treatment | |
|---|---|
| Self-employment tax | $21,194 |
| Qualified business income deduction | $24,661 |
| Income tax | $16,413 |
| Total federal tax | $37,608 |
What changes when the LLC elects S corp?
You become an employee of your own company. The company pays you a salary, withholds payroll taxes on it, and files its own return on Form 1120-S. The profit left after salary comes to you as a distribution, and distributions are not subject to employment taxes.
That gap is the entire appeal. Salary is charged 15.3% for Social Security and Medicare between the employer and employee halves. Distributions are charged nothing.
Same consultant, same $150,000, now paying a $75,000 salary:
| LLC, default | S corp, $75,000 salary | |
|---|---|---|
| Self-employment or payroll taxes | $21,194 | $11,517 |
| Qualified business income deduction | $24,661 | $13,844 |
| Income tax | $16,413 | $20,024 |
| Total federal tax | $37,608 | $31,541 |
Payroll taxes fall by $9,677. That's the number most articles quote.
Income tax rises by $3,611, so the federal saving is $6,066. Take off $2,500 to run the thing and you keep $3,566. (Figures are rounded to the dollar, so a column can be off by one.)
Why does income tax go up?
Because of the qualified business income deduction. The IRS is explicit that reasonable compensation paid by an S corporation is not qualified business income. Every dollar you move into salary leaves the pool that the 20% deduction is figured on.
In the example the deduction drops from $24,661 to $13,844. You also lose the deduction for half of your self-employment tax, and the company's smaller payroll tax deduction only partly replaces it.
Most of the top pages we read for this search never mention the deduction at all. In this example, leaving it out overstates the saving by more than a third of the headline number.
How much does the salary matter?
More than anything else in the calculation. Here is the same $150,000 at three salary levels:
| Salary | Payroll tax saved | Federal tax saved | After $2,500 running cost |
|---|---|---|---|
| $52,500 (35% of profit) | $13,120 | $10,258 | $7,758 |
| $75,000 (50%) | $9,677 | $6,066 | $3,566 |
| $97,500 (65%) | $6,235 | $1,874 | -$626 |
The same business goes from a $7,758 win to a $626 loss on the salary alone.
You don't get to pick the low number because it's the best one. The IRS says an S corporation must pay reasonable compensation to a shareholder who works in the business before any distributions are made, and it can reclassify distributions as wages when the salary is too low. The factors it lists include your training and experience, your duties, the time you put in, and what comparable businesses pay for similar services.
If you are the business, and clients are paying for your own hours, a 35% salary is hard to defend. The three rows are there to show the range. None of them is a recommendation.
At what income does the S corp start to pay?
For a single filer, after the $2,500 running cost:
| Profit | Salary at 35% | Salary at 50% | Salary at 65% |
|---|---|---|---|
| $60,000 | $2,356 | $830 | -$697 |
| $100,000 | $4,636 | $1,883 | -$870 |
| $150,000 | $7,758 | $3,566 | -$626 |
| $200,000 | $10,721 | $5,131 | -$458 |
Run the model down the scale and the break-even is about $31,000 of profit at a 35% salary and about $44,000 at 50%. At 65% it never arrives in this range.
That's why the folk numbers disagree. Each one is true for some salary and wrong for the others.
When does the S corp lose?
When the salary has to be high, and when the profit is high enough that the Social Security wage base starts to matter.
Take a married couple filing jointly with $300,000 of profit from one spouse's business:
| Salary | After $2,500 running cost |
|---|---|
| $105,000 (35%) | $7,828 |
| $150,000 (50%) | -$556 |
| $195,000 (65%) | -$7,763 |
A sole proprietor at that level has already passed the $184,500 wage base, so the last stretch of profit is only charged the 2.9% Medicare piece. There is less payroll tax left to save, and the lost deduction keeps growing with the salary.
It also loses when the business is small, since the saving has to clear the running cost before you see any of it. The $2,500 is our planning figure for payroll software, the extra business return and the added bookkeeping. If your costs run higher, your break-even moves up with them.
Does your state go along with it?
Not always, and every number above ignores state tax.
New York is the example we know best. A federal S election does not carry over on its own. The company makes a separate New York election on Form CT-6. New York City has no S corporation election and does not recognize the state one, and federal S corporations are generally subject to the city's general corporation tax.
A city tax like that can take back a good share of a federal saving. Check your state and city before you file anything.
What is the deadline for 2027?
Form 2553 has to be filed no more than 2 months and 15 days after the start of the tax year the election applies to, or at any time during the year before. For a calendar-year business that wants S corp treatment for 2027, that means any day from now through March 15, 2027.
If you wanted it for 2026 and missed the window, the same instructions describe relief for late elections. It has conditions, so read them with whoever prepares your return.
Electing also puts you on payroll, which brings its own filings. Our 2026 startup tax calendar lists the dates. If you're weighing a C corp instead, our piece on founder salary and health insurance covers owner pay there.
Run your own numbers
The examples here are for one kind of taxpayer. Yours will differ if you're married, if you have other income, or if your profit is high enough for the deduction limits to apply.
The S corp tax calculator takes a few inputs and shows your federal tax as a sole proprietor and as an S corp at three salary levels, including the rows where the election costs you money. If the result is close, or you want the state side worked out, you can book a tax model call from the results page, and our tax team will go through it with you.