| Item | Sole prop / LLC | S corp |
|---|
How this S corp tax savings calculator works
A single-member LLC or sole proprietor pays self-employment tax on nearly all of the business's profit. An LLC or corporation that elects S corporation status instead pays its owner a W-2 salary. Payroll taxes apply to that salary, and the rest of the profit flows through on a Schedule K-1 without Social Security or Medicare tax. This calculator runs both versions for 2026:
- Sole proprietor / LLC. Self-employment tax of 15.3% on 92.35% of profit (Social Security only up to $184,500), plus 0.9% Additional Medicare Tax above the threshold. Half of SE tax is deducted, and the QBI deduction is 20% of profit minus that half.
- S corporation. Employer and employee FICA of 7.65% each on the salary, federal unemployment tax (0.6% of the first $7,000), and Virginia unemployment tax (your VEC rate on the first $8,000). The K-1 profit is what is left after salary, employer taxes and the extra costs you enter.
- QBI effect. Salary is not qualified business income, so the S corp's QBI deduction is 20% of the smaller K-1 profit. At higher incomes the calculator applies the W-2 wage limit, where an S corp salary can help.
- Income tax both ways. We figure federal income tax with the 2026 brackets and standard deduction, and Virginia tax with the 2026 standard deduction, $930 exemptions and the 2%–5.75% rates.
- Savings. Total taxes and costs as a sole proprietor minus total taxes and costs as an S corp.
2026 rates and thresholds used
| Item | Rate | Wage base / threshold |
|---|---|---|
| Self-employment tax | 12.4% SS + 2.9% Medicare on 92.35% of profit | SS on the first $184,500 |
| Employee FICA (withheld from salary) | 6.2% SS + 1.45% Medicare | SS on the first $184,500 |
| Employer FICA (paid by the S corp) | 6.2% SS + 1.45% Medicare | SS on the first $184,500 |
| Additional Medicare Tax | 0.9% | Over $200,000 ($250,000 MFJ, $125,000 MFS) |
| FUTA (after full state credit) | 0.6% | First $7,000 per employee |
| Virginia unemployment (VEC) | 2.5% base for new employers, plus add-ons | First $8,000 per employee |
| QBI deduction | 20% | Wage limit phases in above $201,750 taxable income ($403,500 MFJ) over $75,000 ($150,000 MFJ) |
| Virginia income tax | 2% / 3% / 5% / 5.75% | 5.75% over $17,000 of taxable income |
The federal FUTA figure assumes Virginia is not a "credit reduction" state for 2026; that list is finalized in November each year. Federal brackets are the 2026 figures from IRS Rev. Proc. 2025-32.
Have a question about your situation?
Our team can look at your numbers and tell you exactly where you stand — in person in Fredericksburg or remotely from anywhere.
The costs that eat into S corp savings
The payroll-tax savings are real, but so are the new obligations. An S corp has to run payroll, with federal Forms 941 and 940, W-2s, Virginia withholding returns and VEC quarterly reports. It also files Form 1120-S every year and keeps cleaner books, because owner draws, reimbursements and health insurance have to be handled correctly. Enter your actual quotes for payroll and return preparation in the "extra costs" box. We leave it blank on purpose rather than guess at a price.
- Smaller QBI deduction. Your salary does not count as qualified business income, so below the threshold an S corp usually gets a smaller 20% deduction.
- Lower Social Security earnings record. Paying less into Social Security can mean a smaller future benefit.
- Less flexibility. Retirement contributions based on salary, state rules and getting money out of the company all work differently than with a sole proprietorship.
Our guide to LLC vs. S corp in Virginia walks through the election (Form 2553), timing and the state filings. When it's time to set up payroll, see hiring your first employee in Virginia or our payroll service.
What this estimate leaves out
- Health insurance for more-than-2% shareholders, retirement plan contributions and the self-employed health insurance deduction.
- The QBI rules for specified service businesses (such as consulting, accounting, law and health), the property (UBIA) part of the wage limit and the $400 minimum QBI deduction.
- Your other W-2 jobs' effect on the Social Security wage base, a spouse's Additional Medicare Tax threshold, itemized deductions, credits, the senior deduction, Virginia's pass-through entity tax election and the Virginia spouse tax adjustment.
- Local business license (BPOL) taxes, state formation and registration fees, and the timing of salary payments and payroll deposits.
Want to see just the self-employment side? Try the self-employment tax calculator. Choosing an entity and setting a defensible salary is a tax planning conversation worth having before you file Form 2553 — book an appointment and bring your profit and loss statement.
Frequently asked questions
At what profit does an S corp start to make sense?
There is no single number. The savings come from paying payroll tax only on a reasonable salary instead of self-employment tax on all profit, and they have to outweigh payroll, the 1120-S return, state unemployment tax and a smaller QBI deduction. Run your own numbers and have a professional check the salary.
What is a reasonable salary for an S corp owner?
The IRS expects shareholder-employees who perform more than minor services to be paid reasonable compensation — generally what the business would pay someone else for the same work. Courts have reclassified distributions to working owners as wages, with back payroll taxes, penalties and interest.
Does an S corp owner pay Virginia unemployment tax on their own salary?
Corporate officers are generally treated as employees, so an S corp usually registers with the Virginia Employment Commission and pays state unemployment tax on the first $8,000 of each employee's wages. New employers start at a 2.5% base rate plus any add-ons on their rate notice.
Sources
- IRS — S corporation employees, shareholders and corporate officers (reasonable compensation)
- IRS — Publication 15 (2026), Employer's Tax Guide (FICA rates, $184,500 wage base, FUTA)
- IRS — Topic no. 554, Self-employment tax
- IRS Rev. Proc. 2025-32 — 2026 brackets, standard deduction and § 199A thresholds
- Virginia Employment Commission — How are tax rates assigned?
- Virginia Employment Commission — Taxable wage base
- Virginia Tax — 2026 Form 760ES (rate schedule and exemptions)
