Quick answer
An LLC is a legal structure. An S-corp is a tax election that an LLC can make. By default, a single-member LLC pays 15.3% self-employment tax on 92.35% of its entire profit.
With an S-corp election, you pay yourself a reasonable salary. Only the salary gets the 15.3% payroll tax. The rest of the profit comes out as distributions with no Social Security or Medicare tax.
The catch is extra cost: payroll, a separate Form 1120-S return and often state fees. Budget about $1,500 to $3,000 a year. For many freelancers, the S-corp starts to pay off around $60,000 to $80,000 of net profit, and it is clearly worth a look above $100,000.
How the two options are taxed
| LLC (default) | LLC taxed as S-corp | |
|---|---|---|
| Federal return | Schedule C on your Form 1040 | Form 1120-S plus a K-1 to you |
| Tax on your labor | 15.3% SE tax on 92.35% of all profit | 15.3% FICA on your salary only |
| Remaining profit | Same SE tax | Distributions, no FICA |
| Payroll required | No | Yes, W-2 wages with withholding |
| Typical extra cost | $0 | About $1,500 to $3,000 a year |
| Income tax | Same brackets | Same brackets |
Income tax works about the same either way, because S-corp profit still flows through to your personal return. The savings come almost entirely from payroll tax.
Social Security tax (12.4%) stops at the 2026 wage base of $184,500. Medicare (2.9%) has no cap. That is why savings shrink in percentage terms at very high incomes.
LLC vs S-corp calculator
Enter your expected net profit, the salary you would pay yourself and your extra S-corp costs. The calculator compares SE tax as a sole prop or LLC with employee plus employer FICA on your salary.
LLC vs S-Corp Savings Calculator (2026)
Compare self-employment tax with S-corp payroll taxes plus extra costs.
Estimate only, not tax advice. Uses 15.3% SE tax on 92.35% of profit and 15.3% FICA on salary, with Social Security capped at the 2026 wage base of $184,500. Ignores the QBI deduction, income tax effects, Additional Medicare Tax and state taxes or fees (such as California’s 1.5% S-corp tax). By FreelancerTaxHQ.
The result is a rough payroll tax comparison. For a full self-employment tax estimate, use the Self-Employment Tax Calculator. This one does not include the QBI deduction, income tax, Additional Medicare Tax or state rules.
Worked example: $100,000 of profit
Maya is a freelance UX designer with a single-member LLC. Her 2026 net profit is $100,000. As an S-corp, she would pay herself a $50,000 salary and expects $2,000 of extra costs.
| Item | LLC (default) | S-corp |
|---|---|---|
| Taxable base | $92,350 (92.35% of $100,000) | $50,000 salary |
| Social Security (12.4%) | $11,451 | $6,200 |
| Medicare (2.9%) | $2,678 | $1,450 |
| Payroll or SE tax | $14,130 | $7,650 |
| Extra S-corp costs | $0 | $2,000 |
| Total | $14,130 | $9,650 |
Estimated savings: about $4,480 a year. The other $50,000 reaches Maya as distributions without payroll tax.
Savings at different profit levels
Each row assumes $2,000 in extra costs and a salary a CPA might consider defensible for that profit.
| Net profit | Salary | SE tax as LLC | S-corp FICA plus costs | Estimated savings |
|---|---|---|---|---|
| $40,000 | $30,000 | $5,652 | $6,590 | -$938 (loses money) |
| $60,000 | $35,000 | $8,478 | $7,355 | $1,123 |
| $80,000 | $40,000 | $11,304 | $8,120 | $3,184 |
| $100,000 | $50,000 | $14,130 | $9,650 | $4,480 |
| $150,000 | $70,000 | $21,194 | $12,710 | $8,484 |
| $200,000 | $90,000 | $28,234 | $15,770 | $12,464 |
At $40,000, the extra costs wipe out the savings. At $60,000, the benefit is small and may not justify the paperwork.
Costs and trade-offs people forget
QBI deduction. The 20% qualified business income deduction applies to S-corp profit after salary, not to the salary. A higher salary lowers your QBI deduction. See our QBI Deduction guide for the 2026 thresholds.
State taxes. Some states tax S-corps directly. California charges a 1.5% S-corp franchise tax with an $800 minimum. New York City does not recognize S-corp status for its city corporate tax.
Retirement contributions. Solo 401(k) employer contributions are based on your W-2 salary, not on distributions. A low salary can limit how much you save.
Social Security benefits. Lower wages mean lower earnings on your Social Security record. That can slightly reduce future benefits.
Unemployment tax and paperwork. You file quarterly Form 941, annual Form 940 and W-2s. Missed payroll deposits bring penalties.
Reasonable salary: the rule that limits savings
The IRS requires S-corp owners who work in the business to take reasonable compensation before distributions. If you pay yourself $0 or a token salary, the IRS can reclassify distributions as wages and charge back taxes and penalties.
Courts look at your training, duties, time spent and what similar businesses pay for the same work. For a service freelancer, most of the income comes from your own labor, so the salary usually needs to be a meaningful share of profit. Our guide, Reasonable Salary for S-Corp Owners: How to Set It, covers methods in detail.
When an S-corp usually makes sense
An S-corp election is often worth considering when:
- Your net profit is steady at $60,000 to $80,000 or more.
- You expect that level to continue for several years.
- You are comfortable running monthly or quarterly payroll.
- Your state does not add large S-corp taxes.
It usually does not make sense for new or irregular income, side hustles or profit below about $50,000. You need an entity to elect: a sole proprietor can't elect S-corp status, but an LLC or corporation can. Compare structures in Sole Proprietorship vs LLC for Freelancers.
Frequently asked questions
Is an LLC or S-corp better for a freelancer?
It isn't either-or. Most freelancers form an LLC first, then elect S-corp taxation once profit is high enough. The election is filed on Form 2553.
At what income should I switch to an S-corp?
Many CPAs start the conversation around $60,000 to $80,000 of net profit. Run your own numbers, since salary and state costs change the answer.
Can I pay myself a very low salary?
No. The salary must be reasonable for the work you do. A salary that is too low invites IRS reclassification of distributions as wages.
Does an S-corp lower my income tax?
Not much. Income tax still applies to all profit on your personal return. The main saving is Social Security and Medicare tax on distributions.
This article is general information, not tax advice. Consult a CPA or Enrolled Agent for your situation.
Related guides
- How Much Does It Cost to Form an LLC? Fees by State
- Best LLC Formation Services Compared
- Cheapest States to Form an LLC (and Why It May Not Matter)
- Do I Need a Registered Agent for My LLC?
About this guide
Written by the Freelancer Tax HQ editorial team, based on our professional experience, official US government sources (IRS, SSA and other agencies) and reputable informational articles listed in the sources below. Last reviewed on . Tax rules change often, and we update this guide when they do. Read our editorial policy or report an error.
Sources
SSA: Contribution and Benefit Base; IRS: S Corporation Compensation and Medical Insurance Issues; IRS: Instructions for Form 2553; IRS: Self-Employment Tax (Social Security and Medicare Taxes). Example figures are FreelancerTaxHQ illustrations.
Official resources linked in this guide: IRS: Tax preparer credentials; IRS: S Corporations.