C-Corp vs S-Corp Tax Calculator
A C-Corporation pays corporate income tax at a flat 21% rate on profits, and shareholders pay personal income tax again on dividends (0%, 15%, or 20% qualified dividend rate), resulting in double taxation. An S-Corporation is a pass-through entity: it pays no corporate tax, and all profits flow to shareholders' personal returns, taxed once at individual rates. However, S-Corp shareholders who work in the business must pay themselves a reasonable salary subject to FICA taxes (Social Security and Medicare); only income above the reasonable salary, distributed as K-1 income, escapes the 15.3% self-employment tax. This calculator compares the total federal tax burden (including FICA, income tax, and any dividend tax) side by side for both structures, allowing you to specify salary level, dividend distribution percentage, and marginal rates. The break-even point for S-Corp savings typically occurs around dollar 40,000-dollar 60,000 in profit above reasonable salary.
On $200,000 business profit with a $80,000 owner salary, the estimated total federal tax is -- as a C-Corp versus -- as an S-Corp. The lower-tax structure saves an estimated --.
C-Corporation
S-Corporation
How C-Corp and S-Corp taxation works
C-Corporation: double taxation explained
A C-Corp is a separate taxable entity. It pays corporate income tax at a flat 21% rate (IRC Section 11, as set by the Tax Cuts and Jobs Act of 2017) on its net taxable income. The owner may pay themselves a salary, which is deductible by the corporation and reduces corporate taxable income. When the corporation distributes remaining after-tax profits as dividends, shareholders pay qualified dividend tax at 0%, 15%, or 20% (depending on income level) plus a potential 3.8% Net Investment Income Tax (NIIT) for high earners.
The combination of corporate tax and shareholder dividend tax is called double taxation. If all after-tax profits are distributed, the effective combined rate on $1 of corporate profit can reach 36% or more. However, if profits are retained within the corporation for reinvestment, the dividend tax is deferred.
S-Corporation: pass-through with FICA savings
An S-Corp is a pass-through entity: it pays no federal corporate income tax. Instead, all profits and losses are reported on shareholders' individual returns (via Schedule K-1) and taxed at individual rates. S-Corp shareholder-employees must pay themselves a reasonable salary subject to FICA (Social Security and Medicare taxes, totalling 15.3% on wages up to the Social Security wage base). Income distributed above the reasonable salary as K-1 distributions avoids FICA, which is the principal tax advantage of an S-Corp over a sole proprietorship.
S-Corp total tax = employer FICA (7.65% x salary) + employee FICA (7.65% x salary)
+ income tax on (salary + K-1 distribution) x (marginal rate + state rate)
When each structure wins
S-Corp tends to win when: the business distributes most profits to the owner, income is in the middle tax brackets, and the owner can justify a moderate reasonable salary. The FICA savings on distributions above the salary are the key benefit.
C-Corp can win when: the business retains and reinvests profits (deferring the dividend tax), the business plans to raise outside investment or grant stock options, qualified small business stock (QSBS) exclusions under IRC Section 1202 may apply, or the business intends to go public. The 21% flat rate is lower than top individual rates.
Neither structure is universally better. Factors beyond tax include legal liability, fringe benefit treatment, exit strategy, investor requirements, and state-level fees (some states impose franchise taxes or minimum taxes on S-Corps or C-Corps). This calculator covers federal tax only.
This is a simplified comparison for illustrative purposes. Consult a qualified tax professional and business attorney before choosing an entity structure.
C-Corp vs S-Corp: frequently asked questions
What is the main tax difference between a C-Corp and an S-Corp?
A C-Corp pays corporate income tax at a flat 21% on its profits (IRC Section 11). When after-tax profits are distributed to shareholders as dividends, shareholders pay personal income tax on those dividends (qualified dividend rate: 0%, 15%, or 20% depending on income). This is called double taxation. An S-Corp does not pay corporate income tax; instead, all profits pass through to shareholders who report them on their personal returns and pay income tax at individual rates. S-Corp distributions (K-1 income above reasonable salary) also avoid FICA taxes.
What is a 'reasonable salary' for an S-Corp owner?
The IRS requires S-Corp shareholders who provide services to the business to pay themselves a 'reasonable salary' subject to FICA taxes (Social Security and Medicare). The IRS does not define a specific dollar amount; it is the amount that would be paid for similar work in similar circumstances. Factors include the nature of the work, hours worked, qualifications, comparable market salaries, and the business's financial condition. Paying an unreasonably low salary to avoid FICA is a known IRS audit risk.
When does an S-Corp save money over a sole proprietorship?
An S-Corp saves money compared to a sole proprietorship when the owner's total business income significantly exceeds what they need to pay themselves as a reasonable salary. The excess income is distributed as K-1 income, which avoids the 15.3% self-employment tax (on income up to the Social Security wage base) that a sole proprietor would pay on the same amount. The break-even point varies but is often cited around $40,000-$60,000 of profit above a reasonable salary, after accounting for S-Corp setup and payroll administration costs.
Can an S-Corp avoid all payroll taxes?
No. S-Corp owners who work in the business must take a reasonable salary subject to FICA. Only income above the reasonable salary paid as K-1 distributions escapes FICA. Attempting to pay little or no salary and taking all income as distributions is a well-documented IRS audit issue. The IRS can reclassify distributions as wages and assess back payroll taxes, penalties, and interest.
What are the eligibility limits for an S-Corp?
Under IRC Section 1361, an S-Corp may have at most 100 shareholders, all of whom must be US citizens or resident aliens (no foreign shareholders), and it may only have one class of stock. Certain entities (corporations, partnerships, most trusts) cannot be shareholders. A C-Corp has none of these restrictions. If your business plans to raise venture capital or have complex ownership structures, a C-Corp is typically required.
Does the 21% C-Corp rate make C-Corps attractive at higher income levels?
The 21% flat corporate rate is lower than most individual marginal rates for high earners. However, when profits are distributed as dividends, the combined effective rate (21% corporate + 15% or 20% qualified dividend rate + potential 3.8% NIIT) can reach 36% to 40% or more, which often exceeds S-Corp pass-through rates. C-Corps can be advantageous if profits are retained and reinvested in the business rather than distributed, deferring the dividend tax.
Official sources
- C-Corp guidance: IRS Corporations.
- S-Corp guidance: IRS S Corporations.
- IRC Section 11 corporate rate: 26 U.S.C. Section 11, US Government Publishing Office.
Reviewed by the CalculatorHub team, edited by James Graham, 13 June 2026. See our methodology. General information only, not tax or legal advice. Consult a qualified professional before choosing a business structure.