How much can I save with an S-corp election if I net $200K?

As a sole proprietor or single-member LLC at $200K net profit, your self-employment tax in 2026 is roughly $28,200. The math: net SE income of $200,000 times 92.35% equals $184,700; Social Security tax of 12.4% on the first $184,500 (the 2026 SS wage base) equals $22,878; Medicare tax of 2.9% on the full $184,700 equals $5,356. That $28,200 hits before any income tax.

As an S-corporation paying yourself a $80,000 W-2 salary (40% of profit, typical for a service-based business), your FICA load drops to roughly $12,240. Social Security of $9,920 plus Medicare of $2,320, both calculated on the $80K salary instead of the full $200K profit. The remaining $120K flows out as distributions, which are not subject to SE tax or FICA. Gross savings: roughly $16,000 per year.

Reasonable salary is the lever. At a 50% salary ($100K), gross savings drop to roughly $13,000. At a 35% salary ($70K), gross savings rise to roughly $17,500. The IRS requires that the salary be reasonable for the work performed, comparable to what an arm's-length employer would pay for the same services in your geography. A defensible methodology, documented before you set the number, is the audit-defense tool.

Subtract the real costs of running an S-corp: payroll service ($600 to $1,200 per year), the separate 1120-S business return ($1,500 to $2,500 per year), state franchise or filing fees ($0 to $800 per year depending on state), and slightly more bookkeeping complexity. Total annual overhead lands at $2,000 to $3,000 for most service businesses, making net annual savings at $200K profit typically $10,000 to $15,000 with a reasonable salary in the 35% to 50% range.

These savings recur every year you stay above the threshold. Over a five-year stretch at $200K profit, the cumulative savings is $50,000 to $75,000, which is why the election is one of the highest-leverage tax decisions a 1099 earner makes.