Vantage
Reviewed by the Vantage Accounting Pros tax team · Nov 2026
Quick answer
An S-corp can lower self-employment tax because you pay yourself a reasonable salary and take the rest of the profit as distributions. It also adds payroll, a separate return and more bookkeeping. It tends to make sense once your profit is steady and comfortably above what a reasonable salary for your role would be.
How the saving works
As a sole proprietor or single-member LLC, all of your profit is subject to self-employment tax (Social Security and Medicare).
As an S-corp, you pay yourself a salary that is subject to payroll tax. Profit above that salary can be paid as distributions, which are not subject to payroll tax. The difference is the saving.
What it costs
You'll need to run payroll, file quarterly payroll returns, and file a separate S-corp return (Form 1120-S) each year. Some states add their own fees or taxes.
The salary has to be reasonable for the work you do. Setting it too low is a common audit issue.
How to decide
We compare the payroll tax you'd save against the added costs, using your actual numbers. If the saving clearly wins, we look at timing.
To be treated as an S-corp for a given year, Form 2553 is generally due within 2 months and 15 days after the start of that tax year. Late-election relief is sometimes available.
This guide is general information, not advice for your situation. Talk to us about your numbers.