S-Corp Reasonable Compensation & Tax Savings 2026-2030

Compare payroll and income tax for a sole proprietor against an S-corp shareholder-employee, tax years 2026-2030. Models the Social Security wage base by year, Additional Medicare Tax by filing status, and the 20% QBI deduction. Federal only; state is a flat rate you enter.
IRC 1401, 1402 - SE taxIRC 3101, 3111, 3121 - FICAIRC 164(f)IRC 199ARev. Rul. 74-44
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1

Tax year & filing status

2026 uses the Social Security Administration published wage base. 2027-2030 are projections.
Sets the Additional Medicare Tax threshold: $200,000 (single, head of household), $250,000 (joint), $125,000 (separate). IRC 3101(b)(2); IRC 1401(b)(2)(A). Amounts are fixed by statute and not indexed.
Used only for years after 2026. The wage base is the 1994 base of $60,600 times the national average wage index ratio, rounded to the nearest $300 (Social Security Administration, contribution and benefit base). Default 2.5%.
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Business & owner information

Profit before any owner compensation and before employer payroll tax. Sole proprietor: Schedule C net profit. S-corp: the amount split between salary and distributions.
W-2 wages paid to the shareholder-employee. Must be reasonable for services rendered: Rev. Rul. 74-44; David E. Watson, P.C. v. United States, 668 F.3d 1008 (8th Cir. 2012).
Wages from other employers. They use up the owner's Social Security wage base (IRC 1402(b)(1)) and count toward the Additional Medicare threshold.
Counts toward the $250,000 joint Additional Medicare threshold: IRC 1401(b)(2)(B); IRC 3101(b)(2).
Rates under IRC 1(j)(2) for 2026 (Rev. Proc. 2025-32) and, by statute, later years. Applied to the change in taxable income; the tool does not run the full return.
Flat marginal rate on business income. Enter 0 for a state with no income tax. Entity-level state taxes are not modeled.
IRC 199A is permanent after P.L. 119-21 section 70105. Reasonable compensation is excluded from qualified business income: IRC 199A(c)(4)(A). The deduction is applied to federal tax only.
Payroll service, Form 1120-S preparation, state fees. Enter your own quote; it is subtracted from the S-corp result.
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Results

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Assumptions & sources

Assumptions & sources for the selected year
ParameterValueStatusCitation
Projected figures are estimates. Only the Social Security wage base changes by year in this tool. For 2027-2030 it is projected from the growth rate you enter and is not published by the Social Security Administration. Every other parameter is fixed by statute. The actual base is set from the national average wage index and may differ.
Not modeled. Taxable income limits on the QBI deduction (IRC 199A(a)(1)(B)); the W-2 wage and property limit and the specified service trade or business phase-out above the threshold (IRC 199A(b)(2), (d)(3)); the net investment income tax; owner health insurance and retirement plan deductions; state entity-level taxes; the Social Security benefit effect of lower reported wages. Confirm each against the Client's full return.
Last verified: October 29, 2026
Sources: IRC 1401, 1402 (SE tax; 92.35% factor in IRC 1402(a)(12); $400 floor in IRC 1402(b)(2)); IRC 3101, 3111, 3121 (FICA); IRC 6413(c) (refund of Social Security tax withheld above the base); IRC 164(f); IRC 199A; Rev. Proc. 2025-32 (2026 rate tables and IRC 199A thresholds); Social Security Administration contribution and benefit base (ssa.gov/oact/cola/cbb.html, ssa.gov/oact/cola/cbbdet.html); IRS, S Corporation Compensation and Medical Insurance Issues (irs.gov); Rev. Rul. 74-44, 1974-1 C.B. 287; David E. Watson, P.C. v. United States, 668 F.3d 1008 (8th Cir. 2012). Educational estimate only.
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