W-2 vs 1099 vs S-Corp Tax Calculator (2026)

Roughly when your annual revenue exceeds $60,000-$70,000 with reasonable expenses. Below that, the $2-4k of annual admin costs (payroll service, accountant, state franchise tax) eats the SE-tax savings. Above $100k revenue, S-Corp almost always wins on pure tax math for non-SSTB professions. For SSTBs (consulting, law, medicine, accounting, finance) above the QBI single threshold of $201,775, the advantage shrinks but doesn't disappear.

Generally no — structure decisions are tied to formal entity creation and IRS election deadlines. You can leave a W-2 job mid-year and become 1099 (1099 is just self-employment, no entity required). You can form an LLC at any time. S-Corp election (Form 2553) must be filed within 2 months 15 days of the start of the tax year you want it to apply (March 15 for calendar-year filers). After mid-year, it applies to the next tax year. Plan ahead.

The IRS says it should match what you'd pay an employee to do the same work. Use Bureau of Labor Statistics (BLS) Occupational Employment Survey, Robert Half salary guides, or industry-specific reports. Court cases (Watson v. Commissioner, 2010; Glass Blocks v. Commissioner, 2013) have settled around 30-40% of net profit for service businesses as a defensible floor. Going below 30% is a red flag for IRS audit. Document your reasoning.

Yes. State tax can swing total tax burden by $10,000-$30,000/year at high incomes. California's 13.3% top rate on income above $1M nearly cancels the federal S-Corp savings for high earners. New York City residents pay state + city = 14% combined at the top. Texas, Florida, Washington, and Tennessee residents capture the full federal advantage. If you're location-flexible, state choice is more impactful than structure choice.

SSTBs are listed in IRC Section 199A(d)(2): consulting, law, medicine, accounting, financial services, brokerage, investment management, performing arts, athletics, and 'any trade or business where the principal asset is the reputation or skill of one or more of its employees or owners.' Tech consulting is in a gray zone — you're an SSTB if you're selling expertise, but generally non-SSTB if you're selling a product. The default heuristic in this calculator follows the broad rule; override with the toggle if you're confident your work is non-SSTB.

Self-employed health insurance is deducted on Schedule 1, Line 17 — above-the-line, so it reduces AGI. Deduction is limited to net SE earnings minus half of SE tax. You can include premiums for yourself, spouse, dependents, and children under 27. You cannot also claim it on Schedule A (no double-dipping). For S-Corp >2% shareholders, premiums are paid through the company, included in W-2 box 1 wages (taxable), but then deducted on Schedule 1 Line 17 — net effect is the same above-the-line deduction.

Common case: W-2 day job + 1099 side gig. The W-2 wages count toward FICA wage base ($184,500 cap), so by the time your side gig kicks in, you may already have hit the cap and only owe Medicare 2.9% on side income. The QBI deduction applies only to the side gig income (qualified trade or business). This calculator models a single primary source — for multi-source scenarios, the math is additive but more complex. CPA territory.

An LLC is a state-level legal entity (limited liability protection). S-Corp is a federal tax election (how the entity is taxed). Most S-Corps in practice are LLCs that elected S-Corp tax treatment — you get LLC liability protection plus S-Corp tax efficiency. You can also have a corporation (Inc.) elect S-Corp. The LLC vs Corp choice affects governance (operating agreement vs bylaws) but not federal tax treatment after S-Corp election.

You need an entity — either an LLC or a corporation. A sole proprietorship cannot elect S-Corp. Most people form a single-member LLC (~$50-$500 to file in most states) and immediately file Form 2553 to elect S-Corp tax treatment. Some states require a separate state-level S-Corp election (e.g. NY). The whole formation + election process takes 2-4 weeks and costs $200-$1,500 depending on whether you use Legalzoom, an attorney, or DIY.

Annually, in November or December. Three triggers warrant a structural review: (1) revenue change >25% year-over-year; (2) state move; (3) major life event (marriage, divorce, kids, retirement near). The IRS allows S-Corp revocation effective the first day of the next tax year if filed by March 15 of that year. So a December review gives you time to act before deadlines. Don't elect-and-forget.