So many people proudly say, “I have an S-Corp!” thinking they are making a power move — when in reality, they don’t even own a business entity. An S-Corp is not a business, it’s a tax election. CPAs often lead business owners down this path by saying, “You can save on taxes if you file as an S-Corp!” What they aren’t telling you is how Social Security and Medicare taxes really work.
Yes, when you operate an LLC, you must pay self-employment tax (15.3%). But when you file as an S-Corp, you don’t pay self-employment tax — and right there, you think you’re winning. That is the trick. You are NOT winning.
Let’s break it down. When you work for Walmart and earn $40,000:
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You pay 7.65% (deducted from your paycheck)
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Walmart pays the other 7.65% as your employer
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If Walmart is sued, you are not liable
Now compare that to an S-Corp election:
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You must pay yourself a salary as an employee of your own business
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You pay 7.65% in payroll taxes on your paycheck
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Your S-Corp pays the other 7.65% — but you own the S-Corp
So did you really save? NO. You just split the 15.3% between yourself and a business you still personally own and are responsible for.
And on top of that: the Secretary of State still lists your business as an LLC — because S-Corp is just a tax election. When you apply for a loan, your business income is still reported on your personal 1040. You still have to personally guarantee everything. You haven’t separated yourself from your business at all.
