The S-corp question, priced honestly for 2026: how much payroll tax the structure actually saves at your profit and a defensible salary — and the rule that stops you setting that salary to $1.
Reasonable compensation is the law, not a dial: the IRS can reclassify distributions as wages (with back taxes and penalties) when the salary is set artificially low for the work performed. Model salaries you could defend.
Distribution above salary: $40,000 — the only part that escapes payroll tax.
| SE tax on the whole profit | $14,130 |
| Total tax (all layers) | $25,745 |
| You keep | $74,255 |
| Payroll tax on the salary only | $9,180 |
| Total tax (all layers) | $21,340 |
| You keep | $78,660 |
An S-corp needs payroll (even for one person), a separate Form 1120-S return, state filings, and in some states a franchise tax or minimum fee. Below roughly $40,000–$60,000 of profit, those costs commonly consume the entire payroll saving — the model above shows the gross saving so you can judge it against real quotes.
Method note: running costs excluded from the arithmetic and stated here, per this page's model.
Shareholder-employees must be paid reasonable compensation before distributions; courts have reclassified distributions for underpaid owners (the IRS's published position, FS-2008-25 and the Form 1120-S instructions). A salary set purely to dodge payroll tax is the audit trigger, not the strategy.
Source: IRS Form 1120-S instructions; IRS reasonable-compensation guidance.
Wages paid by an S-corp can support the §199A deduction at higher incomes, while LLC profit may qualify differently — one of several reasons this page models payroll taxes only and labels the rest.
Source: IRS §199A guidance (2026).
When the payroll-tax saving (roughly 15.3% of the profit above a defensible salary) clearly exceeds the year's running costs — for many one-person businesses that crossover sits around $40,000–$60,000 of profit.
Barely: both are pass-throughs taxed once at your rates. The model applies the same engine to both, with each structure's payroll deduction; the difference you see is essentially the payroll-tax line, which is the honest story.
Yes — an eligible LLC can file Form 2553 (or check-the-box plus 2553) and keep its LLC legal form with S-corp tax treatment. This page compares the tax treatments, not the legal forms.
LLC vs S-corp for 2026: on $100,000 of profit with a $60,000 salary (Texas), the S-corp saves about $4,405 a year in payroll/SE tax in this model — with the reasonable-salary rule and running costs stated up front, not buried.
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What an S-corp election actually saves in payroll tax at your profit and a defensible salary for 2026 — with the reasonable-compensation rule and the running costs that eat small savings.
On $100,000 of profit with a $60,000 salary (Texas, single), the model saving is roughly $4,000 a year before running costs.
The saving is payroll tax on the distribution — profit above the salary. Set the salary to zero and the model lies; the IRS reclassifies, so the page will not help you pretend otherwise.
When the payroll saving clearly beats payroll-service, return-preparation and state fee costs — often around $40,000–$60,000 of profit.
Yes — Form 2553 election; the legal form stays an LLC.
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