S-Corp Election for YouTubers: Save Thousands in Self-Employment Tax

As a sole proprietor or default LLC, you pay 15.3% self-employment tax on ALL net profit (12.4% Social Security up to $168,600 in 2026, plus 2.9% Medicare on all earnings). On $100,000 net profit, that is $15,300 in self-employment tax alone — on top of income tax.

With an S-Corp election, you pay yourself a 'reasonable salary' and take the remaining profit as a distribution. Only the salary portion is subject to payroll tax.

Example on $100,000 net profit:
- Without S-Corp: $15,300 in self-employment tax
- With S-Corp (paying yourself $50,000 salary): $7,650 in payroll tax on salary + $0 self-employment tax on the $50,000 distribution
- Annual savings: approximately $7,650

The savings scale with income. A YouTuber earning $200,000 net profit who pays themselves a $70,000 salary saves roughly $19,890 per year.

The catch: S-Corp has additional costs (payroll processing, extra tax filings, potentially higher accounting fees). These costs typically run $1,500-$3,000/year.

To elect S-Corp status you need:
1. An existing LLC (or you can form a corporation, but LLC + S-Corp election is simpler)
2. File Form 2553 with the IRS (Election by a Small Business Corporation)
3. File by March 15 for the current tax year, or within 75 days of forming your LLC
4. Only US citizens or resident aliens as members
5. No more than 100 shareholders
6. One class of stock only

Ongoing requirements:
- Pay yourself a W-2 salary that the IRS considers 'reasonable' for your role
- Run payroll (monthly or semi-monthly) with proper withholding
- File Form 1120-S (S-Corp tax return) annually — due March 15
- Issue yourself a W-2 and file payroll tax returns (Form 940, 941)
- File Schedule K-1 for distributions passed through to your personal return

What is a 'reasonable salary'?
The IRS does not define an exact number, but it must be comparable to what you would pay someone else to do the same work. For a YouTuber handling filming, editing, scripting, and business management, $40,000-$70,000 is typically defensible depending on your niche and total revenue. The more you earn, the higher your salary should be. Setting salary too low is the number one audit trigger for S-Corps.

S-Corp makes sense when:
- Net profit exceeds $50,000-$60,000/year (the tax savings outweigh the added costs)
- You have consistent, predictable income
- You are willing to run payroll and file additional tax returns (or pay an accountant $1,500-$3,000/year to handle it)

S-Corp does NOT make sense when:
- Net profit is below $40,000/year (savings do not cover the added complexity and costs)
- Your income is highly variable month-to-month (makes setting a salary difficult)
- You are not willing to maintain payroll compliance
- You plan to reinvest most profits back into the business (salary requirements still apply)

The breakeven point: Most CPAs agree that S-Corp starts saving money when net profit consistently exceeds $50,000/year. Below that, the accounting costs eat up the tax savings.

Disclaimer: This is general information, not tax advice. Work with a CPA who understands creator businesses to determine the right salary and structure for your situation.