Partnership vs LLC vs S Corp Tax Calculator

Where the difference comes from

The federal income tax rates are the same in both structures, and so is the qualified business income deduction in most cases. The difference is almost all Social Security and Medicare tax. A partner pays self-employment tax on guaranteed payments and on their distributive share alike. An S corporation shareholder who works in the business pays payroll tax only on wages; the corporation pays the matching employer half. Profit paid out above the salary carries neither. Against that saving sit the costs of running a corporation: payroll, a separate Form 1120-S return, and in some states an entity tax. How business partners pay themselves covers draws, guaranteed payments and salaries in plain terms.

Self-employment tax in a partnership or LLC

Self-employment tax is 15.3%: 12.4% for Social Security and 2.9% for Medicare (IRS). It applies to net earnings from self-employment, which are 92.35% of the profit, because the law lets you first take off half of the 15.3% (26 U.S.C. §1402(a)(12)). The 12.4% stops at the Social Security wage base, $184,500 for 2026 (SSA); the 2.9% has no ceiling. Half of the tax is deductible in working out adjusted gross income. Nothing is owed when net earnings are under $400.

On top of that comes the 0.9% Additional Medicare Tax on wages and self-employment income over $250,000 for a joint return, $125,000 married filing separately and $200,000 for everyone else (IRS Topic 560). Those thresholds are set in the statute and are not adjusted for inflation, and the 0.9% is not part of the deductible half.

The calculator treats every owner as working in the business, which is when the whole share is self-employment income. A limited partner's distributive share is excluded by statute (§1402(a)(13)); whether a particular LLC member counts as one is a question for an accountant. Partnership taxes, Form 1065 and the K-1 explains how the share is reported.

Payroll tax and a reasonable salary in an S corporation

Salary carries 7.65% from the owner (6.2% Social Security up to $184,500, 1.45% Medicare on all of it) and the same 7.65% from the corporation, which deducts its half as a business expense. The 0.9% Additional Medicare Tax applies to salary over the same thresholds. The corporation also owes federal unemployment tax: 6.0% of the first $7,000 of each employee's wages, 0.6% after the usual 5.4% credit for state unemployment tax, so $42 an owner (IRS Topic 759). State unemployment tax is left out; some states exempt corporate officers and the rates vary by employer.

The salary cannot be whatever minimizes tax. The IRS says an S corporation "must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made" (IRS). The factors courts have used include the owner's training and experience, duties, time devoted to the business, what comparable businesses pay for similar services, and how much of the revenue comes from the owner's own work rather than staff or equipment. There is no safe percentage. The calculator's default, the guaranteed payment you entered, or 40% of the owner's share of profit where there is none, exists only so the comparison has a number; it is not an IRS figure. Put in what it would cost to hire someone to do the owner's job.

The qualified business income deduction in 2026

Section 199A lets an owner deduct up to 20% of their qualified business income. The One Big Beautiful Bill Act made it permanent, widened the phase-in ranges to $75,000 ($150,000 for a joint return) and added a $400 minimum deduction for anyone with at least $1,000 of qualified business income from a business they materially participate in, from 2026 (26 U.S.C. §199A; Rev. Proc. 2025-32). How the calculator applies it:

• Guaranteed payments and S corporation wages are not qualified business income (IRS). In a partnership it is the distributive share, reduced by the part of the self-employment tax deduction that comes from it (Treas. Reg. §1.199A-3(b)(1)(vi), in proportion to income); in an S corporation it is the share of profit after salaries.
• Up to the threshold ($201,750 of taxable income before the deduction, $403,500 on a joint return, for 2026), the deduction is 20% of qualified business income, capped at 20% of taxable income.
• Above it, the deduction is limited to 50% of the W-2 wages the business pays, phased in across the $75,000 or $150,000 range. The 25% of wages plus 2.5% of property alternative is left out. Here the structures part ways: a partnership's guaranteed payments are not W-2 wages, so a partnership with no employees loses the deduction above the range, while an S corporation's owner salaries count.
• A specified service business (health, law, accounting, consulting, financial services and the rest of §199A(d)(2)) loses the deduction across the same range and has none above it, in either structure.

The 2026 figures the calculator uses

All as of 2026. Standard deductions from the IRS release of the 2026 adjustments; brackets and the QBI figures from Rev. Proc. 2025-32, sections 4.01 and 4.26; the Additional Medicare Tax from IRS Topic 560; the wage base, a per-person figure, from the SSA. The brackets and standard deductions are the ones the One Big Beautiful Bill Act made permanent, adjusted for inflation by the IRS. Married filing separately is not offered.

A worked example the calculator has to match

The calculator's defaults: $200,000 of profit, two owners at 50% each, both married filing jointly with no other income, a $60,000 guaranteed payment each in the partnership and a $60,000 salary each in the S corporation, $2,000 a year of extra S corporation costs, no state tax. For one owner:

The S corporation comes out $3,668.27 a year cheaper for each owner, $7,336.54 for the two. Almost all of it is the self-employment tax on the $40,000 distributive share, about $5,650, less the running costs; the income tax is $239.28 higher in the S corporation, because what comes off the owner's income there (half the employer payroll tax, FUTA and costs, $5,632) is less than the partnership's deduction for half the self-employment tax ($7,064.78), and the QBI deduction is a little smaller. Holding the pay at the same share of profit, the calculator finds the break-even near $42,100 of profit. Two more cases were checked by hand against the calculator: a $500,000 consulting firm with two single owners, where the service business rules take away one owner's deduction entirely, and a $900,000 California LLC with three owners and $200,000 of staff wages.

State taxes, simplified

The state rate box applies one flat rate to each owner's adjusted gross income, which is a rough stand-in: most states have brackets and few allow the qualified business income deduction. For California the calculator adds the entity taxes the Franchise Tax Board publishes: an S corporation pays 1.5% of its net income with an $800 minimum (FTB); an LLC pays the $800 annual tax plus a fee on its total California income of $900 from $250,000, $2,500 from $500,000, $6,000 from $1 million and $11,790 from $5 million (FTB); a limited partnership or LLP pays $800, and a general partnership neither (FTB). An LLC that elects S corporation status pays the corporate tax instead of the LLC fee. Elsewhere, check before electing: New York City, for one, does not recognize the S election and taxes an S corporation under its General Corporation Tax (NYC Finance). LLC and LLP filing fees by state lists what forming and keeping an entity costs in each state.

Trade-offs that are not this year's tax

• One class of stock. An S corporation can have only one class of stock (§1361(b)(1)(D)), so profit is paid out strictly by shares. A partnership agreement can allocate profit some other way, a larger share to the partner who put in the capital until it is repaid, say, if the allocation has substantial economic effect (§704(b)). Partners who want a split that differs from ownership need the partnership. How to split profits in a partnership sets out the options.
• Who can own it. No more than 100 shareholders, and no partnerships, corporations or nonresident aliens among them (§1361(b)). A partnership can take any kind of partner.
• Debt and basis. A partner's basis includes their share of the partnership's liabilities (§752), so losses funded by a bank loan can be deducted. An S corporation shareholder's losses are limited to their stock plus money they lend the company themselves (§1366(d)); a bank loan the shareholder only guarantees does not count.
• Getting property out. An S corporation that distributes appreciated property is taxed as if it sold it (§311(b)), and the gain passes through to the owners. A partnership can usually distribute property to a partner with no gain at the time (§731). That matters when partners split up and each takes assets.
• The election itself. An LLC keeps its state-law form and elects on Form 2553, filed no more than 2 months and 15 days after the start of the tax year it is to take effect, or during the year before (IRS). General partnership vs LLC and LLP vs LLC vs limited partnership cover the liability side of the choice, which the tax election does not change.

What the calculator leaves out

Each owner is figured as their own household taking the standard deduction, so itemized deductions, credits, the alternative minimum tax, capital gains and the net investment income tax are not in it. Two owners married to each other should be added up as one return, which the calculator does not do. Retirement plans change the picture: an S corporation owner's employer 401(k) contribution is figured on W-2 salary, so a low salary also lowers what can be put away. So does health insurance, which an S corporation pays for a more-than-2% shareholder as wages (IRS). Losses, state unemployment tax and state brackets are simplified or left out. "Other household income" counts toward income tax only; if it is a spouse's wages, the 0.9% Additional Medicare Tax can start sooner than shown.

General information, not tax advice. Have a CPA or tax lawyer run your actual numbers before electing S corporation status or changing how partners are paid.