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S-Corp Salary vs Distribution
Splitting profit into a salary and a distribution saves 15.3% on everything that moves, which is where the familiar “$8,000 on $100,000” comes from. It is not the whole story. A salary is not qualified business income, so every dollar you move gives back a fifth of a dollar of deduction — and once your income clears the §199A threshold the deduction is capped at half your wages, which turns the whole relationship on its head. This prices every salary from a tenth of profit upward and shows you the curve.
Uses published 2026 federal figures
What the structure saves · 2026
Enter your business's profit and the salary you'd pay yourself, then press Calculate.
Your business
Net profit is what the business makes before paying you anything — the pot being split. Do not subtract your own salary here; that is the whole decision being modeled.
Salary is what you would put through payroll as W-2 wages. Everything left over is a distribution, which carries no payroll tax — and that difference is where the saving comes from.
What the business clears before paying you anything
W-2 wages through payroll. The rest is a distribution.
Payroll service, extra bookkeeping, the 1120-S return
Most businesses qualify. Turn it off if yours is a specified service trade — health, law, accounting, consulting, financial services — and your income is past the phase-out, where the deduction disappears entirely.
The rest of your return
Other wages — a spouse's job, or your own second one — matter more than they look. They use up the Social Security wage base first, so a household already at the cap gets far less benefit from an S-corp: there is no 12.4% left to avoid.
Your total income also decides whether you are past the §199A threshold, which for 2026 is $201,775 single and $403,550 filing jointly. Past it, the whole salary trade inverts.
Yours or a spouse's
Deduction
HSA, IRA, and so on — outside the business
For educational purposes only. Results are estimates and do not constitute financial, tax, or legal advice. Consult a qualified professional before making any financial decisions.
How to use it
Net profit is what the business clears before paying you anything. Don't subtract your own salary — that is the decision being modeled, and subtracting it first makes the whole comparison meaningless.
Then enter the salary you think you'd actually pay yourself, and look at where it lands on the curve. That is the point of the chart: it tells you whether moving away from your figure costs you $50 or $5,000, which is what decides how hard the reasonableness question is worth arguing about.
Don't skip other W-2 wages. A household already at the Social Security wage base has no 12.4% left to avoid, and an S-corp election that looked worthwhile becomes close to pointless.
Press Example to load a worked case: a consultant clearing $150,000 who pays themselves $70,000.
What the popular figure leaves out
“An S-corp saves $8,000–$10,000 on $100,000 of profit” is repeated everywhere, and the payroll arithmetic behind it is right: 15.3% of everything you move from salary into distributions.
What it omits is that the 20% QBI deduction moves the other way. The deduction applies to pass-through business income, and a salary is not pass-through business income — it is wages. Every dollar you move into salary is a dollar of QBI lost, so a fifth of it comes back at the income-tax line.
There is a second, smaller term too. A sole proprietor deducts half their self-employment tax from AGI; an S-corp owner does not, because the corporation has already deducted the employer half from the pass-through income instead. The two are not the same size.
This tool prices both, separately, so you can see the headline figure and what survives of it.
Why the answer inverts for high earners
Below the §199A threshold — $201,775 of taxable income for a single filer in 2026, $403,550 filing jointly — the advice everyone gives is arithmetically correct. Lower salary is always cheaper, and the only limit is what you could defend.
Above it, the deduction becomes capped at 50% of the W-2 wages the business pays. Now a salary that is too small doesn't merely cost you a fifth of the payroll saving — it can wipe out the entire deduction.
So the curve turns over and there is a genuine cheapest salary somewhere in the middle: the point where half your wages meets a fifth of your shrinking pass-through income. It is usually far higher than any rule of thumb suggests, and — conveniently — far easier to defend as reasonable compensation.
Assumptions and limits
- This prices the choice; it does not defend it. What salary is reasonable is a facts-and-circumstances question about your trade, your hours and what someone else would charge to do your job — and the IRS decides it after the fact, with the power to reclassify distributions as wages and add penalties.
- The QBI deduction includes the 50%-of-wages limit and its phase-in. The separate rules for specified service trades — health, law, accounting, consulting, financial services — are not modeled. If yours is one and your income is past the phase-out, switch the deduction off.
- The employer half of payroll tax is counted as a real cost, because for an owner-operator it comes out of the same pocket.
- Not modeled: state unemployment and FUTA on the salary, workers' compensation, state franchise or entity-level taxes, health insurance treatment for a more-than-2% shareholder, or the way a salary changes what you can put into a retirement plan — which for some owners is worth more than the payroll saving.
- An estimate for planning. Not tax advice, and not a substitute for a professional looking at your actual business.