The Paycheck Dial

1. What this calculator is. It compares a Schedule C business with an S corporation using the numbers you enter. All results are estimates for tax year 2026, federal income tax and payroll or self-employment tax only. State taxes are not calculated. The location you enter is used only to look up wages.

2. Not a substitute for analysis. Neither calculated scenario is a substitute for an in-depth reasonable-compensation analysis, or for advice from a tax professional who knows your facts. The methods are intentionally simplified to make the calculator useful before you spend hundreds or thousands of dollars on a full analysis. Nothing here is a recommendation of a salary, of an entity type, or of any amount of tax savings.

3. No formula in the law. The IRS publishes a list of factors that bear on reasonable compensation for an S corporation officer, and says the answer depends on the facts and circumstances of each case. It publishes no formula or wage table. The factors it lists include training and experience, duties and responsibilities, time and effort devoted to the business, what comparable businesses pay for similar services, and the use of a formula. Both time-based and market-wage inputs relate to listed factors; neither is a safe harbor.

4. The conservative estimate (BLS-median method). This is the published median annual wage for the occupation we matched to your industry, at your location, treated as 40 hours a week for 52 weeks. Wages come from the Bureau of Labor Statistics (BLS) Occupational Employment and Wage Statistics. Courts and the IRS have used a figure of this kind as a starting point, and the result has been adjusted for the owner's own facts such as experience and business size. The calculator carries none of those facts. It also fixes 40 hours whatever your actual hours, and the occupation we matched is our judgment of the closest published job, not a finding about the work you do.

5. The aggressive estimate (documented-time method). This is a weighted average of published wages for functions such as marketing, sales, fulfillment and administration (and management when your business has other people to manage), weighted by your weekly time shares and multiplied by your actual weekly hours and 52 weeks. It is the most aggressive documented-time approach in this tool and is not a recommendation. Time and effort is one factor on the IRS list. The method also leaves out factors that the IRS and courts consider, such as the size and complexity of the business, what comparable businesses pay, and qualifications. Neither end of the slider is a safe harbor.

6. The QBI-optimal wage. Where it is shown, this is the owner wage at which the wage limit on the qualified business income deduction and 20 percent of qualified business income are equal. It describes how that deduction works. It is not a measure of what your services are worth, and it is not a salary to pay. It is not the wage that minimizes your total tax in every case.

7. Limits of the wage data. (a) BLS wages cover employees only; they may not describe owners, and some occupations are mostly self-employed. (b) Published wages are capped at about $239,200 a year; where a wage reaches the cap the result reads "at least $239,200" and the true figure may be higher. (c) Industry detail is coarse, and our match of industries to occupations is a judgment. (d) Owner time and skill do not equal market jobs: the median ignores experience, business size and hours, and the time-allocation figure ignores comparable pay and depends on records you keep.

8. What is not tested. Some courts have also asked whether an independent investor would be satisfied with the return on the owner's invested capital. This calculator has no return-on-equity input and does not test that. Owners with large invested capital or a high business return should expect that a full analysis may reach a different answer.

9. Records. Any salary an owner pays is the owner's decision, to be made with a qualified tax professional and supported by records of the owner's duties, hours and the facts of the business. The calculator keeps no records for you.

10. Sources. The legal statements above rest on IRS guidance and court opinions summarized in the project's methodology finding. Some opinions were read as copies on third-party sites, and a few holdings were not read at the source. The product page names no case.