Strategy calculator · Business owners

S-Corp Election and Salary

An S-corp election splits your profit into two checks: a fair salary that pays payroll tax, and a distribution that doesn't. See what that's worth after the lost deductions and the cost of running payroll, and whether your salary would hold up.

ebotCPA
Ebot Mbi, CPA, EA
817-214-4014 · Irving, TX

Your facts

Example figures loaded. Replace with yours.

1 · The household 2026 federal rates

Filing status Other taxable income Spouse's wages, interest, rentals Of that, your spouse's W-2 wages For the 0.9% Additional Medicare Tax threshold

2 · The business Before you pay yourself

Yearly profit Salary you'd pay yourself What you'd pay someone else to do your job

Yearly cost of running it Payroll service, S-corp return, state unemployment tax Type of business Service businesses lose the QBI deduction at high incomes

3 · Your salary support What makes it defensible

Salary data for your job and city on file Real payroll with withholding, not owner draws Profit is steady from year to year Form 2553 filed on time (or late-election relief planned)

Your verdict

Kept each year after costs$0

Over 10 years$0Same facts each year

Salary as share of profit0%

Line	As is (Schedule C)	S-corp

Try other salaries Lower saves more, but is harder to defend

Salary	Share of profit	Kept per year	Defensibility

Record for your file

The rules behind it

§1361–1362Who can elect S status, and how (Form 2553). Your LLC keeps its legal form.

§1402(a) · §3101Self-employment tax on all profit, versus payroll tax on salary only.

Rev. Rul. 74-44Distributions that are really pay are treated as wages.

Watson v. United States8th Cir. 2012. A $24,000 salary on about $200,000 a year. The court set reasonable pay at about $91,000, so about $67,000 a year of distributions became wages.

Uses 2026 federal brackets and standard deductions, the 2026 Social Security wage base ($184,500: the 12.4% Social Security tax stops there, so earnings above it save only Medicare), the 2.9% Medicare tax with no cap, the 0.9% Additional Medicare Tax on wages and self-employment income above $250,000 married / $200,000 single (§3101(b)(2), §1401(b)(2); employee side only, not matched by the company, and not reduced by half for self-employment), and the 20% QBI deduction with its 2026 phase-in. Texas has no state income tax; other states change the result. Assumes no other wages for the owner and no retirement or health-insurance adjustments. A lower salary also lowers your future Social Security benefit and your retirement-plan room (25% of W-2 salary in an S-corp vs. about 20% of net self-employment earnings). A more-than-2% owner's health insurance must run through W-2 to stay deductible (§162(l), Notice 2008-1). Late S elections can get relief under Rev. Proc. 2013-30. General education only, not tax advice for your situation. Talk with a licensed tax professional before acting. ebotCPA PLLC, Irving, TX · 817-214-4014.