Tax Treatment
C Corp vs S Corp Taxes 2026: The Real Numbers at Every Income Tier
The headline is “double taxation vs pass-through.” The honest version is more nuanced. The C-Corp retained-earnings play and S-Corp compliance overhead both change the math depending on your income level and distribution plans.
Updated 17 April 2026 · 2026 rates: 21% corporate, SS wage base $168,600
How Each Structure Is Taxed
C Corporation
- Entity level: Files Form 1120. Pays 21% federal corporate income tax on net income.
- Shareholder level: Dividends taxed at 0%, 15%, or 20% (qualified) plus 3.8% NIIT above $200k single / $250k MFJ.
- Combined worst-case: 21% corporate + 23.8% on remainder = approximately 39.8% effective.
- Retained earnings play: Reinvested profits only bear the 21% layer currently. Second layer deferred until distribution or QSBS-eligible exit.
S Corporation
- Entity level: Files Form 1120-S (informational). No federal entity-level tax.
- Shareholder level: Income flows via Schedule K-1. Shareholders pay personal income tax at their marginal rate.
- SE tax saving: Only the salary triggers FICA (7.65% + 7.65%). Distributions above salary avoid the full 15.3% SE tax.
- QBI 199A deduction: Up to 20% of qualified business income. Phases out for SSTBs above $191,950 single / $383,900 MFJ in 2026.
The number competitors never show: The SE-tax saving is gross. Net of S-Corp compliance costs (payroll service $600-1,800/yr, Form 1120-S $1,000-2,500/yr, state franchise tax), the actual saving at $100k income is typically $5,000-$8,000, not the $15,000 headline figure most articles cite.
Summary: Tax and Take-Home by Income Level
Single filer, no state income tax. Federal rates only. QBI applied where eligible. Compliance overhead not included in tax totals.
| Net Income / Salary | C-Corp (distributed) tax | C-Corp (retained) tax | S-Corp tax | S-Corp take-home |
|---|---|---|---|---|
| $50,000 / salary $35,000 | $22,355 | $15,855 | $10,275 | $39,725 |
| $100,000 / salary $60,000 | $49,780 | $30,180 | $23,700 | $76,300 |
| $200,000 / salary $80,000 | $106,240 | $54,240 | $46,240 | $153,760 |
| $500,000 / salary $120,000 | $290,160 | $123,360 | $150,360 | $349,640 |
Illustrative estimates. Does not include state income tax, NIIT above thresholds, or S-Corp compliance costs. Consult a CPA for your situation.
The C-Corp Retain-Earnings Play
If the C-Corp reinvests profits rather than distributing them, shareholders only pay the 21% corporate layer currently. The second tax layer is deferred until sale or distribution. For a founder planning a QSBS-eligible exit, the deferred layer may never materialise on the first $10M of gain.
Caution: the accumulated earnings tax (IRC 531-537) imposes 20% on C-Corp retained earnings beyond reasonable business needs. The first $250k is sheltered. See fringe benefits and accumulated earnings tax.
S-Corp Compliance Costs: What the Breakeven Actually Looks Like
| Cost item | Low | High |
|---|---|---|
| Payroll service (Gusto ~$49/mo base) | $600 | $1,800 |
| Form 1120-S preparation (CPA) | $1,000 | $2,500 |
| State franchise tax (CA: $800 min + 1.5% net income) | $800 | $8,000+ |
| Bookkeeping if outsourced | $0 | $2,400 |
| State payroll registration and compliance | $100 | $400 |
| Total annual compliance | $2,500 | $15,100+ |
At 15.3% SE-tax savings, you need roughly $16,000-$20,000 in distributions above salary to break even on minimum compliance costs. The S election is typically net-positive starting around $80k-$100k net income.