What is the self-employment tax rate in 2026?

The self-employment tax rate in 2026 is 15.3 percent on the first $168,600 of net self-employment earnings. That is 12.4 percent for Social Security plus 2.9 percent for Medicare. Above the Social Security wage base, only the 2.9 percent Medicare portion applies, and an additional 0.9 percent Medicare surtax kicks in above $200,000 for single filers and $250,000 for married filing jointly.

Do I pay self-employment tax on my gross income or my net income?

You pay self-employment tax on your net earnings from self-employment, not your gross. Net earnings equal your gross business income minus your allowable business expenses. Then a further adjustment is applied: you multiply that net figure by 92.35 percent before applying the 15.3 percent SE tax rate. This adjustment represents the employer-half of FICA that a W-2 employee would never owe.

Is half of my self-employment tax deductible?

Yes. You can deduct one-half of your self-employment tax as an above-the-line adjustment to income on your Form 1040. This deduction lowers your adjusted gross income and therefore your federal income tax, but it does not lower the SE tax itself. It is purely an income-tax deduction.

When do I have to pay self-employment tax?

Self-employment tax is not withheld from your checks, so the IRS requires you to send it in quarterly as part of estimated tax payments. The 2026 quarterly deadlines are April 15, 2026, June 16, 2026, September 15, 2026, and January 15, 2027. If you owe less than $1,000 for the year you can pay all of it at tax time, but most freelancers earning meaningful income will need to make quarterly payments.

Do I owe self-employment tax if I only earned a little on the side?

You owe self-employment tax once your net self-employment earnings for the year reach $400 or more. Below $400, you do not owe SE tax on that income, though you may still owe regular income tax on it depending on your total situation.

S-Corp Tax Savings Calculator: Project Your Annual SE Tax Reduction

If your freelance or consulting net profit consistently clears $50,000–$60,000 a year, you may be leaving thousands of dollars on the table by staying a sole proprietor or single-member LLC. The mechanic is straightforward: as a sole proprietor, 100% of your net profit is subject to self-employment (SE) tax — currently 15.3% on the first $168,600 of net earnings (2024) and 2.9% above that. Elect S-Corp status, pay yourself a reasonable salary, and only the salary portion faces payroll taxes. The remaining profit flows out as an owner distribution, which skips SE tax entirely. Use the calculator above to model your specific split, and read the sections below to understand exactly what drives the numbers.

How the S-Corp Tax Savings Calculation Works

The calculator performs one core comparison: SE tax on 100% of profit (sole prop/SMLLC) minus payroll tax on your reasonable salary only (S-Corp). The difference is your projected annual savings, before accounting for S-Corp overhead costs.

Step 1 – Enter your net profit. Use your expected Schedule C or LLC net income for the year — revenue minus deductible business expenses.
Step 2 – Set a reasonable salary. The IRS requires S-Corp owner-employees to pay themselves a salary that reflects what the market would pay for similar services. The calculator defaults to a range, but you can adjust it. Underpaying yourself is the primary audit trigger for S-Corps.
Step 3 – Review the payroll tax split. Your salary faces both the employer and employee side of FICA (Social Security + Medicare). The distribution — profit minus salary — owes neither SE tax nor FICA.
Step 4 – Subtract S-Corp overhead. Running an S-Corp has real costs: payroll processing, a separate business tax return (Form 1120-S), and often a bookkeeper or CPA. The calculator lets you enter an estimated annual overhead figure so your net savings number is realistic, not just gross.

The resulting figure is your projected after-overhead tax advantage per year. For many freelancers earning $80,000–$150,000 in net profit, this lands between $3,000 and $10,000 annually.

What Counts as a 'Reasonable Salary'?

This is the variable that matters most — and the one the IRS scrutinizes. A reasonable salary reflects what you'd have to pay an arm's-length employee to do the same work. There's no single formula, but useful benchmarks include:

BLS Occupational Outlook data for your profession and region
Industry salary surveys (e.g., Robert Half, Stack Overflow Developer Survey for tech roles)
The percentage-of-revenue rule of thumb — many CPA firms suggest 40–60% of S-Corp net profit as a starting point for service businesses, though this is a heuristic, not an IRS rule

Setting your salary too low — say, $30,000 when you're pulling $200,000 in profit doing specialized consulting — is a red flag. The IRS has successfully reclassified distributions as wages in court cases, triggering back payroll taxes, penalties, and interest. The calculator includes a salary reasonableness check that flags inputs below 35% of net profit as potentially aggressive.

On the other side, a salary that equals 100% of profit eliminates the tax benefit entirely. The optimal salary is the highest defensible number that still leaves a meaningful distribution — which is why the salary input is the most important variable to model carefully.

Break-Even Point: When Does the S-Corp Actually Make Sense?

The S-Corp election is not free. Realistic annual overhead typically includes:

Payroll service fees: roughly $500–$1,500/year for a single-employee S-Corp
Form 1120-S preparation by a CPA: commonly $800–$2,000+ depending on complexity
State-level S-Corp fees or franchise taxes (significant in states like California, which charges a minimum $800 franchise tax)
Additional bookkeeping time to maintain payroll records

At the $40,000–$50,000 net profit level, these costs often erase the tax savings entirely. Most tax professionals put the practical break-even between $50,000 and $70,000 in annual net profit, though your specific reasonable salary, overhead costs, and state tax rules shift that threshold. The calculator shows you exactly where your break-even falls based on your inputs — not a generic rule of thumb.

If you're below the break-even, staying a sole proprietor or SMLLC and maximizing deductions (home office, Section 199A QBI deduction, self-employed health insurance, SEP-IRA contributions) is usually the smarter move.

S-Corp vs. Sole Proprietor vs. Single-Member LLC: Tax Treatment at a Glance

All three structures are common for freelancers, and the distinctions matter for this calculation:

Sole proprietor: Files Schedule C. Net profit flows directly to Form 1040 and is 100% subject to SE tax. No separation between salary and distribution.
Single-member LLC (default tax treatment): Treated identically to a sole proprietor for federal income taxes — Schedule C, full SE tax on net profit. The LLC provides liability protection but no default tax difference.
Single-member LLC with S-Corp election (Form 2553): The LLC retains its liability protection but is taxed as an S-Corp for federal purposes. Net profit is split: salary (subject to payroll tax) and distribution (not subject to SE tax or FICA). This is the most common structure for freelancers making the S-Corp move.
Multi-member LLC: Default tax treatment is as a partnership, not a sole prop — but S-Corp election is also available and the same salary/distribution mechanics apply.

The calculator focuses on the SMLLC-to-S-Corp transition because it's the most common path, but the math is identical for sole proprietors electing S-Corp status through a newly formed corporation.

Frequently asked questions

At what income level does an S-Corp election start saving money?

For most freelancers, the S-Corp election begins generating meaningful net savings — after accounting for payroll and accounting overhead — somewhere between $50,000 and $70,000 in annual net profit. Below that range, the fixed costs of running an S-Corp (payroll service, separate tax return, state fees) tend to offset or exceed the SE tax savings. Use the calculator with your actual overhead estimates to find your personal break-even.

Does my state affect the S-Corp tax savings calculation?

Yes, significantly in some states. California imposes a 1.5% S-Corp franchise tax on net income (minimum $800), which directly reduces your federal savings. New York City taxes S-Corp income at the corporate level, which is unusual and costly. Other states follow the federal S-Corp treatment closely and add little friction. Always factor in your state's specific treatment — the calculator includes a state overhead field where you can add these costs manually.

Can I elect S-Corp status for an existing LLC mid-year?

Yes, but timing matters. To have S-Corp treatment apply for an entire tax year, you generally need to file Form 2553 within 75 days of the start of that year (or within 75 days of forming a new entity). The IRS does grant late election relief in many cases, but it requires a reasonable cause statement. If you're past the deadline for the current year, planning ahead to elect effective January 1 of the following year is the cleanest path.

Does the S-Corp salary affect my Social Security benefits?

Yes — only wages reported on a W-2 count toward your Social Security earnings record, not S-Corp distributions. A lower reasonable salary means fewer quarters of higher-wage credit accumulating toward your eventual Social Security benefit. This is a long-term trade-off worth factoring in alongside the near-term payroll tax savings, particularly if you're earlier in your career.

Will my QBI (Section 199A) deduction change if I elect S-Corp?

It can, and the interaction is nuanced. S-Corp wages paid to you as an owner reduce your qualified business income for Section 199A purposes, which can lower the deduction. For higher earners in specified service trades or professions (consulting, law, health, etc.) who are already phased out of the QBI deduction, this typically doesn't matter. For others, it's worth modeling both scenarios — the calculator accounts for QBI changes when you toggle the S-Corp option.

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