I am in the process of creating an LLC and am trying to decide whether to file as an S Corp.

I make $80,000 at my day job and would be paying myself (via W2) at least 30,000, so I would be above the $110,100 income limit on which I'd have to pay social security tax.

Either way, I will be make $110,100 in 2012. So is there any advantage to filing as an S Corp?

Am I correct that I won't pay social security tax on anything over $110,100 that I make from my day job and my LLC combined?

1 Answer 1


That is correct, the SS cap is on total wages, not each wage. When you create an LLC (as a disregarded entity), you don't pay yourself with a W2, all the LLC earnings are your earnings. So instead of Social Security deductions, you will be paying Self-Employement Tax (which totals to the same amount as you would be paying with W2 to yourself, just under different name).

Note that S-Corp is a pass-through entity for Federal taxes, so there's not much difference from LLC being taxed as LLC (other than extra complexity, for S-Corp you need to file additional forms while LLC is completely invisible on your Federal taxes). It may be different on a state level, but probably not much as well.

S-Corp existed when there were no LLC's, but now I don't see a reason to ever deal with S-Coprs unless you're dealing with shareholders and shares.

Something to take into the account: if you're paying yourself with W2 - you'll have to deduct the FICA taxes on all your earnings, and then get credit on your 1040. With LLC - you won't have to pay and wait for refunds.

  • "the SS cap is on total wages, not each wage" do you have a source for that? I'm looking at the 1040 SE right now and i don't see anywhere that it takes your w2 wages into account. I believe you pay self-employment tax at 13.3% on the first $110,000 of self-employment income, regardless of w2 wages. Mar 22, 2012 at 1:59
  • @mehaase sure, here: irs.gov/businesses/small/article/0,,id=98846,00.html#1, quote: For both 2010 and 2011, the first $106,800 of your combined wages, tips, and net earnings are subject to any combination of the Social Security part of self-employment tax, Social Security tax, or railroad retirement (tier 1) tax. Income you make after $106,800 will not be subject to the Social Security tax.
    – littleadv
    Mar 22, 2012 at 4:28
  • You mentioned "unless you're dealing with shareholders and shares". I think that's a key distinction and would expand it to "unless there's any possibility that you may one day seek investors", which I based on the strong advice to form an S-Corp in Delaware over an LLC and any other state, by TechStars VC's in the book "Do More Faster".
    – Hack-R
    Jun 15, 2016 at 22:35
  • In addition to FICA you need to also take into account all the payroll and franchise taxes for your state like this calculator: beforetax.co/s-corp-tax-calculator (you can also add W2 income to see how the SS cap limits your savings) Dec 3, 2020 at 17:03
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    @papiro yes, but for a SMLLC with a sole member employee contributing only their own labor - SCorp is required to pay that employee a reasonable salary which would probably leave no other profits. This becomes more important when the business grows to the point where there are multiple employees, or in general when there's income that is not attributed solely to the owner's personal services.
    – littleadv
    Feb 21, 2023 at 18:02

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