If you're a physician earning significant 1099 income, chances are you've already felt the sting of self-employment taxes. In Part 1 of this series, we explained how the default LLC leaves every dollar exposed to a 15.3% self-employment tax bite.

The good news? By electing S-Corporation status for your LLC, you can reduce that burden — often saving thousands every year.

How an S-Corp Election Works

The S-Corp election doesn't change your legal structure. If you're an LLC (or PLLC in Louisiana), you remain an LLC under state law. What changes is how the IRS taxes your income.

Instead of all net income being subject to self-employment tax, you split income into:

• Reasonable Salary — paid as W-2 wages, subject to payroll taxes (Social Security + Medicare).

• Distributions — paid as dividends, not subject to self-employment or payroll tax.

The $300,000 Example

Default LLC (no S-Corp):

• Social Security (12.4% on first $168,600): $20,906.40

• Medicare (2.9% on $300,000): $8,700

• Additional Medicare (0.9% over $200K): $900

• Total Self-Employment Tax: $30,506.40

LLC with S-Corp Election (Salary = $180,000, Distributions = $120,000):

• Social Security: $20,906.40

• Medicare (2.9% on $180,000): $5,220

• Total Payroll Taxes on Salary: $26,126.40

Annual Savings: ≈ $4,380

The $500,000 Example

Default LLC (no S-Corp):

• Social Security: $20,906.40 (cap reached at $168,600)

• Medicare (2.9% on $500,000): $14,500

• Additional Medicare (0.9% on $300,000 over $200K): $2,700

• Total Self-Employment Tax: $38,106.40

LLC with S-Corp Election (Salary = $220,000, Distributions = $280,000):

• Social Security: $20,906.40

• Medicare (2.9% on $220,000): $6,380

• Additional Medicare (0.9% on $20,000 over $200K): $180

• Total Payroll Taxes on Salary: $27,466.40

Annual Savings: ≈ $10,640

Other Advantages of an S-Corp Election

• Audit Protection – Schedule C filers face higher audit rates than S-Corp filers.

• QBI Deduction Opportunities – Paying W-2 wages may help preserve some of the 20% deduction.

• Retirement Planning – W-2 wages support higher retirement contributions.

• Professional Credibility – Many banks and hospitals prefer S-Corp structures.

The Bottom Line

For physicians earning $150,000 or more in 1099 income, an S-Corp election often shifts the math decisively in your favor.

Yes, there's added compliance — payroll, bookkeeping, and a separate return — but for many physicians, the tradeoff is worth $5,000–$10,000+ in annual savings.

👉 Next in the series: “PLLC or PMC? Choosing the Right Professional Entity for Your Practice.”