When should I elect S-corp status if I make $150K as a 1099 contractor?

As a 1099 contractor or sole proprietor, you pay 15.3% self-employment tax on your full net profit (up to the Social Security wage base, plus 2.9% Medicare on the rest). On $150K of net profit, that runs roughly $19,000 to $21,000 in SE tax alone, before any income tax.

As an S-corporation, you only pay FICA (15.3% combined employer plus employee) on the W-2 reasonable salary you pay yourself, typically 35% to 50% of net profit for a service-based 1099 contractor. The rest of the profit flows out as distributions, which are not subject to SE or FICA tax. At $150K profit with a $60K reasonable salary, you would pay FICA on $60K instead of SE tax on $150K, a gross savings of roughly $11,000 per year.

Subtract the real costs: payroll service ($600 to $1,200 per year), separate 1120-S tax return ($1,500 to $2,500 per year), and slightly more bookkeeping complexity. Net annual savings at $150K typically lands at $8,000 to $11,000, and recurs every year you stay above the threshold.

Timing matters. To elect S-corp status for the current tax year, you must file Form 2553 by March 15 of that year (or within 75 days of forming the entity). Miss the deadline and you can request late-election relief under Rev. Proc. 2013-30, but it's cleaner to elect on time. If it's already past March 15 and you didn't file, model the election now and elect for next year. The savings start in January.

The election only makes sense if your net profit is consistent. If $150K was a one-year spike and you expect $50K next year, the overhead can outweigh the savings. The breakeven is roughly $60K to $80K in sustained net profit.