At least in the US that's true only for a C-corp. S-corps are pass-through entities. So it works like this very simplified example: Business gross earnings:

At least in the US that's true only for a C-corp. S-corps are pass-through entities. So it works like this very simplified example: Business gross earnings: $200,000 Owner salary: $60,000 All other expenses including employer-side payroll tax: $20,000 Year-end result: Owner receives a W2 reporting $60,000 in wages, which is taxed for Social Security, Medicare, and a special "self-employment tax". These wages are also eligible for deductions for retirement plan contributions (but not section 125 cafeteria plan deductions). Owner receives a K1 reporting $200k - $60k - $20k = $120,000 profit, which is taxed at the owner's individual income tax rate. The business itself will not pay corporate tax on its profits like a C-corp would.