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BizTaxMetrics

Reference

Glossary

Plain-English definitions of the tax terms used across BizTaxMetrics. Every entry links to the underlying IRS source where applicable. Tax year 2026.

  • Reasonable compensation

    The W-2 salary that an S-Corp owner-employee must pay themselves for the services they personally perform. The IRS does not publish a percentage or formula — the salary must be reasonable for the owner's experience, duties, industry, and geography. Setting the salary too low to maximize distributions risks reclassification, additional tax, and penalties. The calculator shows a soft warning when the salary is below 30% of net profit, but that's a UI hint, not a legal rule.

    #glossary-reasonable-compensation

  • §199A — Qualified Business Income (QBI) deduction

    A federal tax deduction that lets pass-through entity owners (LLCs, S Corps, partnerships, sole proprietors) deduct up to 20% of their qualified business income. Made permanent and expanded by the One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025). For 2026 the phase-in range is $201,750–$276,750 (single) and $403,500–$553,500 (MFJ). The BizTaxMetrics calculator exposes the S-Corp W-2 drag as an optional toggle.

    #glossary-section-199a

  • UBIA — Unadjusted Basis Immediately after Acquisition

    The original cost of qualified property held by a business, used in the §199A W-2/UBIA limitation. Above the §199A phase-in threshold, the deduction is limited to the greater of (a) 50% of W-2 wages paid by the business, or (b) 25% of W-2 wages plus 2.5% of UBIA.

    #glossary-ubia

  • SSTB — Specified Service Trade or Business

    A category of businesses that face tighter §199A deduction limits at higher income levels. The IRS list includes: 12 categories, e.g. health, law, accounting, consulting, financial services, athletics, and any business where the principal asset is the reputation or skill of one or more of its employees. The BizTaxMetrics calculator surfaces the S-Corp W-2 drag as a generic upper-bound estimate — it does not specifically model SSTB phase-outs.

    #glossary-sstb

  • Self-employment tax (SE tax)

    The 15.3% federal tax (12.4% Social Security + 2.9% Medicare) that self-employed individuals pay on their net earnings via Schedule SE. The IRS applies a 0.9235 factor first, so SE tax is really 15.3% × 92.35% = ~14.13% of net profit. The 12.4% Social Security portion is capped at the annual wage base ($184,500 for 2026); the 2.9% Medicare portion is uncapped. A default-taxed single-member LLC pays SE tax on its net profit.

    #glossary-se-tax

  • FICA — Federal Insurance Contributions Act

    The federal payroll tax that funds Social Security and Medicare. Split into a 12.4% Social Security portion (capped) and a 2.9% Medicare portion (uncapped), totaling 15.3%. Split 50/50 between employee (withheld from wages) and employer (paid by the entity). The 0.9% Additional Medicare Tax applies above filing-status thresholds and is entirely employee-side — no employer match.

    #glossary-fica

  • Additional Medicare Tax (0.9%)

    A 0.9% surtax on wages and self-employment income above the filing-status threshold: $200,000 (single / HOH), $250,000 (MFJ), $125,000 (MFS). Computed via IRS Form 8959. Applies to the combined total of W-2 wages plus SE income (LLC) or salary (S-Corp). There is no employer match — the entire 0.9% is the employee's responsibility.

    #glossary-additional-medicare

  • Distribution (S-Corp)

    The portion of S-Corp profit that the owner takes out of the business beyond their W-2 salary. Distributions are not subject to FICA or SE tax. They still owe ordinary federal (and state) income tax on the owner's personal return. An S-Corp's total payroll-tax savings depends on the salary-vs-distribution split — that's the whole point of the election.

    #glossary-distribution

  • Pass-through taxation

    Federal tax treatment where the entity itself does not pay income tax; profits and losses flow through to the owner's personal return and are taxed at individual rates. Both the default-taxed LLC and an S Corporation are pass-through entities. A C corporation is the main exception — its profits are taxed at the entity level (currently 21% federal) and shareholders pay a second layer of tax on dividends.

    #glossary-pass-through

  • Form 2553 — S-Corp election

    The IRS form a domestic LLC or corporation files to elect S Corporation federal tax treatment. A new LLC must file by the 75th day of the tax year the election is to take effect to be retroactive to the start of the year. Late-election relief is available under Rev. Proc. 2013-30. States generally require a parallel state-level filing.

    #glossary-form-2553

  • OBBBA §199A minimum deduction

    The One Big Beautiful Bill Act (Public Law 119-21) added a $400 minimum §199A deduction where active QBI is at least $1,000. Both amounts are indexed for inflation beginning in tax years after 2026.

    #glossary-minimum-qbi