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 vs Sole Proprietorship Tax Calculator

If you're a freelancer or self-employed professional clearing $50,000 or more in net profit, you've probably wondered whether electing S-Corp status would cut your tax bill. The answer isn't simply yes — it depends on your specific income, a reasonable salary, and the real costs of running payroll. This calculator works through both scenarios side by side so you can see exactly where the math lands for your situation.

Unlike generic business calculators, this one focuses on the tax comparison that actually matters for this decision: how much self-employment tax you save as an S-Corp versus how much you spend on payroll administration, employer payroll taxes, and accounting. The difference between those two numbers is your net benefit — or your net loss if you jump too soon.

How the Two Structures Are Taxed Differently

As a sole proprietor, 100% of your net profit from Schedule C flows directly to your personal return. You pay self-employment (SE) tax — currently 15.3% on the first ~$168,600 of net earnings and 2.9% above that — on the full amount, plus ordinary income tax on top. There's a deduction for half the SE tax, but you still absorb the full hit as both the employer and employee side.

As an S-Corp, the business pays you a W-2 salary. SE tax (specifically, FICA — Social Security and Medicare) applies only to that salary, not to the remaining profit distributions you take. Distributions pass through to your personal return and are taxed as ordinary income, but not subject to FICA. This is where the savings come from.

The IRS requires S-Corp owner-employees to pay themselves a reasonable compensation — meaning a salary a comparable employee would earn for the same work. Underpaying yourself to minimize payroll taxes is an audit risk. The calculator uses your stated salary to run the numbers honestly.

What the Calculator Actually Computes

Enter three core numbers: your expected annual net profit, the reasonable salary you'd pay yourself, and your estimated annual S-Corp overhead. The calculator then computes:

Sole proprietor SE tax: 15.3% × 92.35% of net profit (the SE tax base), plus the income tax impact of the half-SE-tax deduction
S-Corp payroll taxes: Employer FICA (7.65%) on your salary only, plus employee FICA withheld from your W-2
S-Corp overhead estimate: Payroll processing, bookkeeping, a separate business tax return (Form 1120-S), and state filing fees — commonly ranging from $1,500 to $3,500 per year depending on your service providers
Net savings or cost: The difference between your sole prop SE tax and your S-Corp total burden (payroll taxes + overhead)

The result is a clear break-even point: the income level at which the S-Corp election pays for itself. For most freelancers, this falls somewhere between $50,000 and $80,000 in net profit, but the exact number shifts significantly based on the salary you set and what you pay for payroll and accounting services.

Why Your Reasonable Salary Is the Most Important Input

The salary you set as an S-Corp owner determines almost everything in this comparison. Set it too low and you face IRS scrutiny. Set it too high and you've essentially recreated your sole proprietorship tax burden — because FICA applies to every dollar of that salary.

A common approach is to benchmark your role against comparable W-2 positions using Bureau of Labor Statistics data, industry salary surveys, or published rates for your profession. For example, a freelance software developer might benchmark against mid-level developer salaries in their region. A graphic designer or consultant would look at equivalent roles in their field.

There's no single formula, but many tax professionals suggest paying yourself somewhere between 40% and 60% of S-Corp net profit as salary when the work is primarily your personal services — with the remainder taken as distributions. This is a starting point for discussion with a CPA, not a safe harbor rule.

The calculator lets you test multiple salary scenarios so you can see how the tax outcome shifts as you move that number up or down.

S-Corp Overhead: The Number Most Calculators Ignore

Running an S-Corp isn't free. Beyond the tax savings, you take on real administrative costs that a sole proprietor avoids entirely:

Payroll processing: Even with a lean service like Gusto or QuickBooks Payroll, expect $500–$1,200 per year for a single-employee setup with quarterly filings
Tax return preparation: Form 1120-S (the S-Corp return) typically costs $500–$1,500 more than a Schedule C return, depending on your accountant
State-level fees: Many states charge annual franchise taxes or registration fees for S-Corps that don't apply to sole proprietors — these range from nominal to several hundred dollars
Bookkeeping: The payroll and distribution records an S-Corp requires are more complex than sole prop records, which often means more billable hours from a bookkeeper

When you factor in $2,000–$3,500 in realistic annual overhead, the S-Corp only makes sense once your SE tax savings exceed that threshold by a comfortable margin. At $45,000 in net profit, the savings are often marginal. At $100,000+, they're typically substantial.

When to Actually Make the Switch

The calculator will show you the math, but the decision also involves timing and compliance. A few practical considerations:

You can elect S-Corp status for an existing LLC by filing Form 2553 with the IRS — there are strict deadlines (generally within 75 days of the start of the tax year you want it to apply to)
Some states have their own S-Corp election requirements separate from the federal filing
Once you elect, you're committed for that tax year and future years unless you revoke — so don't elect based on one unusually high-income year if your earnings are volatile
If your income fluctuates significantly year to year, run the calculator for both a high and a low income scenario to stress-test the decision

This calculator gives you the financial foundation for the conversation. Before you file Form 2553, it's worth reviewing the output with a CPA or tax advisor who can confirm your reasonable salary benchmark and walk through your state's specific requirements.

Frequently asked questions

At what income level does an S-Corp start saving money over a sole proprietorship?

For most freelancers, the S-Corp starts producing meaningful net savings somewhere between $60,000 and $80,000 in net profit, after accounting for payroll and accounting overhead. Below $50,000, the overhead often eliminates any tax savings. Use the calculator with your specific salary and overhead estimates to find your personal break-even.

Does an S-Corp save money on income tax, or just self-employment tax?

An S-Corp saves on FICA (self-employment) taxes, not on ordinary income tax. Your total taxable income is roughly the same either way — the S-Corp just shifts some of it from FICA-subject wages to distributions that aren't subject to FICA. You'll still owe income tax on distributions at your normal rate.

What's a 'reasonable salary' for an S-Corp owner?

The IRS requires you to pay yourself what a similarly qualified employee would earn for the same work. There's no official formula, but salary databases, industry surveys, and published wage data for your occupation are commonly used benchmarks. Your salary should reflect the work you actually perform — not be set artificially low just to minimize payroll taxes.

Can I use this calculator if I'm already an LLC?

Yes. Most freelancers who elect S-Corp status do so as a single-member LLC taxed as an S-Corp, rather than forming a separate corporation. The tax comparison in this calculator applies whether you're a sole proprietor, a disregarded-entity LLC, or an LLC electing S-Corp treatment — the core SE tax vs. payroll tax math is the same.

Is this calculator a substitute for talking to a CPA?

No — it's a planning tool to help you understand the numbers before that conversation. The S-Corp election involves IRS deadlines, state-specific requirements, reasonable compensation analysis, and retirement plan implications that go beyond what a calculator can address. Use the output to come to your advisor with specific numbers rather than starting from scratch.

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