2026 tax year · big decisions

Is an S-corp election worth it?

The federal saving is the easy part. What your state charges the company decides it.

Is it worth it for you?

Business & tax details

Updated for 2026 rules

Salary share and withdrawal share are percentages. The withdrawal figure only affects the C corporation, it is what decides whether the second layer of tax applies at all.

Which structure keeps the most

Enter your figures above and press Compare.

A sole proprietor pays self-employment tax on every dollar of profit. An S-corp owner pays payroll tax only on the salary they take, and the rest comes out as a distribution. That is the whole federal mechanism, and it is the same in every state.

What is not the same is the state layer. Four jurisdictions ignore the federal election entirely and tax the company as a C corporation. Eighteen charge a minimum owed even at a loss. Several tax turnover or net worth rather than profit. Any of those can outweigh the federal saving, and the general advice you will read ("elect once you clear $40,000 of profit") accounts for none of it.

Salary is a judgment, not an optimization Less salary means less payroll tax, so the arithmetic always points at the smallest salary you can get away with. Compensation has to be reasonable for the work you do; too low invites reclassification and back payroll tax. Every figure on this site uses 40% of profit as salary, and each state page shows the whole 20 to 60% range so you can see what the trade-off costs rather than being handed the riskiest number as an answer.

States that ignore the federal election

Here the election creates a state tax rather than avoiding one:

StateWhat it charges the company instead
New Hampshire 7.5% on the company's income
Tennessee 6.5% on the company's income
Texas a tax on turnover, not profit
Washington DC 8.25% on the company's income

States charging the company a rate on its income

StateRate on the company's income
Washington DC 8.25%
New Hampshire 7.5%
Tennessee 6.5%
California 1.5%
Illinois 1.5%
Wisconsin 0.2%

States with a minimum owed at zero profit

These are owed whether the business made money or not, which is what turns a marginal election into a losing one for a small company:

What the company itself owes, five states

State entity-level tax on an S-corp with $100,000 of net profit, 2026 Wyoming $0 Texas $0 New York $25 California $1,500 Tennessee $3,350
State entity-level tax on an S-corp with $100,000 of net profit, 2026

This is the layer the federal election doesn't touch: what the state charges the company itself before a dollar reaches you. It ranges from nothing to four figures on the same profit, which is why the same election pays in one state and doesn't in another.

What these figures do not include

Some state charges cannot be worked out from net profit. A gross receipts tax needs turnover; a net worth tax needs a balance sheet. Rather than leave them out silently and show a number that looks complete, each state page lists what applies there. 29 states have at least one:

Every state

What every figure on these pages assumes

Before and after the election

Weigh the whole decision

Stay a sole proprietor? The self-employment tax on the same income with no election. The baseline the S-corp has to beat. Baseline Reasonable salary Too low a salary is the top audit trigger. Find a defensible figure, the number that sets your real saving. Audit risk New quarterly payments Once you elect, payroll and distributions change what you send the IRS. See the 2026 schedule. Form 1040-ES Where to form Formation and annual fees swing by state, and the wrong home state can quietly erase the federal saving. By state Shelter more for retirement An S-corp changes what a Solo 401(k) or SEP lets you contribute. See how much pre-tax you can still put away. Solo 401(k) Compare every entity Sole prop, LLC, S-corp, C-corp side by side on your numbers: the full entity picture, not just the S-corp. Entity compare

The federal saving is only half the math

Four states ignore the election, eighteen charge a minimum even at a loss, and some tax turnover instead of profit. Where you form and operate can outweigh everything the payroll-tax saving buys you.

See where to form

Elect for the saving, not the story

The common advice ("elect once you clear $40,000 of profit") ignores the two things that decide it: the salary you can defend, and what your state charges the company. Take too small a salary and you invite reclassification and back payroll tax; pick the wrong state and a minimum fee eats the saving. Work out the defensible salary and the state layer here before you file the election, not after.

Set a defensible salary first