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The key difference
You form an LLC with your state. You elect S corporation status with the IRS. An LLC that elects S corp taxation is still an LLC under state law — same liability protection, same annual report, same registered agent. Only its federal tax treatment changes.
LLC vs S corp side by side
| Item | LLC (default tax) | LLC taxed as S corp |
|---|---|---|
| What it is | A legal entity formed with your state | A federal tax election an LLC (or corporation) can make |
| How you form it | File Articles of Organization with the state | File IRS Form 2553 (signed by all owners) |
| Who can own it | Anyone, any number of owners, including non-US persons | Up to 100 shareholders; no nonresident alien shareholders; one class of stock |
| How profit is taxed | Passes through; all net earnings subject to 15.3% self-employment tax | Passes through; payroll tax only on owner salary, distributions free of SE tax |
| Owner pay | Owner draws — no payroll | Reasonable salary through payroll + distributions |
| Federal return | Schedule C (1 owner) or Form 1065 (2+) | Form 1120-S + K-1s, due March 15 |
| Extra admin | Minimal | Payroll, quarterly payroll filings, W-2, separate return |
How the S corp savings work
With default LLC taxation, all your net self-employment earnings (92.35% of profit) are subject to 15.3% self-employment tax — 12.4% Social Security up to the wage base ($184,500 in 2026; $192,300 in 2027) and 2.9% Medicare.
As an S corp, you pay yourself a reasonable salary through payroll. Payroll tax (7.65% from you + 7.65% from the company) applies only to that salary. Profit above the salary can be paid as distributions with no payroll or self-employment tax. The IRS requires reasonable compensation before distributions and can reclassify distributions as wages.
Worked example (2026)
| Net profit | Salary (50%) | SE tax as LLC | Payroll tax as S corp | Payroll service | Net difference |
|---|---|---|---|---|---|
| $60,000 | $30,000 | $8,478 | $4,590 | $660 | $3,228 |
| $100,000 | $50,000 | $14,130 | $7,650 | $660 | $5,820 |
| $150,000 | $75,000 | $21,194 | $11,475 | $660 | $9,059 |
Self-employment and payroll tax only, single owner, 2026 wage base. Salary set at 50% of profit for illustration — a reasonable salary depends on your role and market pay. Excludes income tax effects, the 0.9% additional Medicare tax, accountant fees for Form 1120-S and state taxes. Payroll service = Gusto Solo for one person.
Try the S corp calculatorRules and extra costs
- Eligibility: no more than 100 shareholders, one class of stock, no nonresident alien shareholders.
- Payroll: you must run payroll for yourself, withhold taxes and file payroll returns and W-2s.
- Separate return: Form 1120-S is due March 15 for calendar-year companies; filing late costs $255 per shareholder per month, up to 12 months.
- State costs: some states tax S corps or require their own election — check before you elect.
How to elect S corp status for your LLC
- Confirm eligibility and that the numbers work (calculator, then a CPA).
- File Form 2553, signed by all owners, within 2 months and 15 days of the start of the tax year (March 15 for calendar years).
- Set up payroll and decide a reasonable salary.
- File Form 1120-S each year and give owners Schedules K-1.
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General information from IRS publications, not tax advice. Your situation may differ — confirm with a CPA or enrolled agent before you act. Verified October 18, 2026. We may earn a commission if you sign up through our links, at no cost to you. How we’re funded.
Frequently asked questions
What is the difference between an LLC and an S corp?
An LLC is a type of business entity you form with your state. An S corporation is a federal tax status. An LLC can keep its default tax treatment or elect to be taxed as an S corp by filing Form 2553 — it stays an LLC legally.
Is an S corp better than an LLC for taxes?
It can be, once profit is high enough. As an S corp you pay payroll tax only on a reasonable salary, not on all profit. But you add payroll costs, a separate Form 1120-S and stricter rules. Below a certain profit the savings don’t cover the extra cost.
How much can an LLC save by electing S corp?
In our example with $100,000 profit and a $50,000 salary in 2026, self-employment/payroll tax drops by about $6,480, or $5,820 after $660 of payroll-service cost — before income-tax and state effects. Run your own numbers.
Can a non-US resident own an S corp?
No. S corporations can’t have nonresident alien shareholders, so foreign owners of a US LLC keep the default treatment (or elect C corp).
When is the deadline to elect S corp status?
File Form 2553 no more than 2 months and 15 days after the beginning of the tax year the election should take effect — March 15 for a calendar year — or any time during the prior year. Late relief is available under Rev. Proc. 2013-30 within 3 years and 75 days.
Do I still file state LLC reports as an S corp?
Yes. The S election only changes federal tax treatment. Your LLC still files its state annual report and keeps a registered agent. Check your state deadlines.
Your LLC setup checklist
- Get a free EINFrom the IRS, in minutes online.
- Open a business bank accountKeep LLC money apart from yours to protect the liability shield.
- Sign an operating agreementSettle who owns and decides what before it matters.
- Get business insuranceCover what the LLC itself doesn’t protect.
- Track state deadlinesFree reminders before each filing.
Everything in one list: printable LLC compliance checklist · live deadline calendar.