S-Corp Tax Savings Calculator
Evaluate whether electing S-Corp status makes sense for your 1099 locum tenens or independent contractor income.
Business Details
Total annual contracting revenue
The salary you pay yourself from the S-Corp.
50% of net income
Annual cost for payroll service, extra tax return, state LLC fees.
Net Annual Benefit of S-Corp
You are better off remaining a Sole Proprietor. The admin costs and lost QBI outweigh the FICA tax savings.
Sole Proprietor (1099)
S-Corporation
Understanding the Breakdown:
- SE Tax Savings: $6,985
- Lost QBI Value: -$8,211 (You lose QBI on the salary portion)
- Admin Costs: -$2,500
Clinical Context & Calculation Details
How to Use This Calculator
1. Enter Your Income & Expenses: Input your expected 1099 gross revenue and business expenses to find your Net Income.
2. Set a Reasonable Salary: Enter the W-2 salary you plan to run through payroll. This must be justifiable to the IRS. A lower salary increases FICA tax savings but increases audit risk and reduces QBI.
3. QBI Phase-out: Medicine is a Specified Service Trade or Business (SSTB). If your total household income exceeds the phase-out limit (~$241k single / ~$483k married for 2024), you lose the QBI deduction entirely. Uncheck the box if you are phased out.
4. Review the Verdict: The calculator subtracts your admin costs and any lost QBI value from your FICA tax savings to show you the true net benefit.
Why Doctors Need This
For independent contractors and locum tenens physicians, self-employment taxes (15.3% up to the Social Security wage base + 2.9% Medicare) take a massive bite out of income. Electing S-Corp status is often the single largest tax-saving maneuver available to 1099 earners.
However, it is not always a slam dunk. S-Corps require running payroll, filing a separate corporate tax return (Form 1120-S), and paying state franchise fees. For lower 1099 incomes (e.g., $50,000 from a side gig), these administrative costs and the reduction in QBI can actually make an S-Corp more expensive than remaining a Sole Proprietor.
The Math Behind It
Sole Proprietor FICA: 15.3% on 92.35% of net income (up to the Social Security wage base of $168,600 in 2024), plus 2.9% Medicare on all earnings.
S-Corp FICA: 15.3% applied only to the W-2 reasonable salary.
The Trade-off Equation: Net Benefit = (FICA Tax Saved) - (S-Corp Admin Costs) - (Value of Lost QBI).
Pearls & Pitfalls
- Pearl: If your total household income completely phases you out of the QBI deduction, the S-Corp becomes even more advantageous because you no longer have to worry about the "Lost QBI" penalty.
- Pitfall: Setting your reasonable salary too low. If a physician netting $400k sets their salary at $50k, the IRS will likely audit and reclassify distributions as wages, hitting you with back taxes and penalties.
- Pearl: Keep in mind that a lower W-2 salary also means a lower ceiling for solo 401(k) employer profit-sharing contributions (which are capped at 25% of W-2 salary). You must balance FICA tax savings with retirement account optimization.
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Editorial Credibility
J.R. Dunigan, DO | Family Medicine Physician & Founder
I founded MedMoneyGuide to provide physicians with unbiased, specialty-specific financial guidance. My goal is to add transparency and credibility to your financial journey.
Frequently Asked Questions
What is an S-Corp and how does it save taxes?
An S-Corp is a tax election, not a business entity itself. By electing S-Corp status, you split your net income into two buckets: a W-2 Salary and a K-1 Profit Distribution. You only pay the 15.3% Self-Employment (FICA) tax on the W-2 salary portion, shielding the K-1 profit distribution from FICA taxes.
What is a 'Reasonable Salary' for a physician?
The IRS requires S-Corp owners to pay themselves a 'reasonable salary' commensurate with their duties before taking distributions. For physicians, this is heavily scrutinized. A salary that is too low risks an IRS audit. Many CPAs recommend using MGMA data or paying yourself at least what you would have to pay another physician to do your clinical work.
Does electing S-Corp hurt my QBI deduction?
Yes, it can. The Qualified Business Income (QBI) deduction is 20% of your business profit. Because your W-2 salary reduces your business profit, it reduces your QBI deduction. The calculator accounts for this 'lost' QBI value using your marginal tax rate.