The Problem: Self-Employment Tax
As a sole proprietor (the default for 1099 workers), you pay 15.3% self-employment tax on all net income up to the Social Security wage base ($168,600 in 2025), plus 2.9% Medicare tax on everything above that. For a CRNA earning $250K in 1099 income:
Social Security: $168,600 × 12.4% = $20,906
Medicare: $250,000 × 2.9% = $7,250
Additional Medicare (>$200K): $50,000 × 0.9% = $450
Total SE Tax: $28,606/year
That's $28,606 in addition to your federal and state income taxes. This is the tax that W2 employees split with their employer — but as a sole proprietor, you pay both halves.
The Solution: S-Corp Election
An S-Corp is not a separate business entity — it's a tax election. You still have your LLC or PLLC. You just tell the IRS to tax it as an S-Corporation by filing Form 2553.
The magic: as an S-Corp, you split your income into two buckets:
Bucket 1: Reasonable Salary
You pay yourself a W2-style salary through payroll. This portion is subject to full FICA taxes (15.3% split between employer and employee). For CRNAs, a reasonable salary is typically $120K-$150K.
Bucket 2: Distributions
Everything above your salary flows to you as S-Corp distributions. These are subject to income tax but NOT self-employment tax. This is where the savings come from.
The Math: A Real Example
CRNA earning $250K net profit, with a reasonable salary of $130K:
| Line Item | Sole Prop | S-Corp |
|---|---|---|
| Net Profit | $250,000 | $250,000 |
| Salary (FICA-taxable) | all of it | $130,000 |
| Distributions (FICA-free) | $0 | $120,000 |
| Social Security Tax | $20,906 | $16,120 |
| Medicare Tax | $7,700 | $3,770 |
| Total FICA / SE Tax | $28,606 | $19,890 |
| Annual Savings | $8,716 |
Wait — that's less than $20K. You're right. The savings scale with income. At $300K profit with a $130K salary, the savings jump to $14K+. At $350K, it's $18K+. Higher-earning CRNAs save more. And this is every year.
Model your exact numbersHow to Set It Up (Step by Step)
- 1
Form your LLC or PLLC first
If you haven't already, form an LLC (or PLLC in states that require it for healthcare professionals) in your home state. Cost: $50-$500 depending on state. Takes 1-5 business days.
- 2
Get an EIN from the IRS
Free. Takes 5 minutes online at irs.gov. You need this before you can elect S-Corp status or open a business bank account.
- 3
File Form 2553 (S-Corp Election)
Must be filed within 75 days of the start of the tax year you want the election to apply. If you're mid-year, you can request late election relief. Your CPA should handle this — it's a one-page form but the timing matters.
- 4
Set up payroll
As an S-Corp, you MUST run payroll for yourself. This means W-2 issuance, tax withholdings, quarterly payroll tax deposits. Use Gusto (~$40/mo), ADP, or your CPA's payroll service. This is the ongoing cost of S-Corp — budget $500-$1,000/year.
- 5
Determine your reasonable salary
This is the most important (and most scrutinized) decision. Your salary must be 'reasonable' for the work you perform. For CRNAs, $120K-$150K is the typical range. Too low and the IRS will reclassify your distributions as salary. Work with a CPA who has CRNA clients.
- 6
Pay yourself consistently
Run payroll on a regular schedule (monthly or semi-monthly). Take distributions quarterly or as needed from remaining profits. Keep meticulous records separating salary from distributions.
Common Mistakes That Trigger Audits
Setting salary too low
A $50K salary on $300K profit is a red flag. The IRS has seen this movie. CRNAs doing the same work as a W2 provider earning $250K+ can't justify a $50K 'reasonable salary.' The penalty: all distributions reclassified as salary + back taxes + interest + penalties.
Not running payroll at all
Some CRNAs elect S-Corp and then just take distributions without paying themselves a salary. This is not a gray area — it's illegal. You must run payroll.
Inconsistent payroll
Paying yourself a $130K salary but doing it in one lump sum in December looks like tax planning, not a real employment relationship. Pay yourself on a regular schedule.
Electing S-Corp too early
If you're in your first year of 1099 and not sure what your income will be, wait. S-Corp doesn't save much below $80-100K in profit. The payroll costs eat the savings.
DIY without a CPA
The S-Corp election is simple. Running it correctly is not. Payroll tax deposits, quarterly estimated payments, end-of-year K-1 filings, and reasonable salary documentation all need professional oversight. Budget $2K-$4K/year for a CPA.
S-Corp tax modeling with state-specific analysis
Pro+ members get full S-Corp vs sole prop modeling with your state's tax rates, optimal salary calculation, and CPA recommendations.
Should YOU Elect S-Corp?
Yes, if:
- ✓Net 1099 profit exceeds $100K/year
- ✓You plan to work 1099 for 2+ years
- ✓You have a CPA experienced with healthcare professionals
- ✓You're willing to run payroll ($40-80/mo)
Not yet, if:
- ✗First year of 1099, unsure of income level
- ✗Net profit under $80K (savings < costs)
- ✗Doing short-term locum and may go back to W2
- ✗Not ready to manage payroll infrastructure