Gusto vs OnPay vs Patriot Software: LLC Payroll for the S-Corp Election (2026)

Published 2026-05-01

Scenario. Your CPA finished your taxes last month and pointed out something you had not focused on. Your single-member Wyoming LLC made $147,000 in net profit last year. Your CPA said: "If you elect S-corp treatment for the LLC and pay yourself a reasonable salary of $70,000 with the rest as distribution, you save roughly $11,500 in self-employment taxes annually." You agreed to file IRS Form 2553 (the S-corp election under IRC § 1362). The CPA mentioned that you now need payroll software because the IRS requires the W-2 wages, the federal and state withholdings, the FICA matching, and the quarterly 941 filings. The CPA said "Gusto is fine" and ended the call. You search "best LLC payroll S-corp" and find a hundred articles, mostly affiliate-driven, mostly listing the same five vendors.

Below is a focused comparison of the three vendors most consistently cited for single-member LLCs with S-corp elections: Gusto, OnPay, and Patriot Software. The S-corp election layer matters because the payroll setup is structurally simpler than for a multi-employee business, but the compliance still has to be exactly right. The IRS treats the reasonable-compensation question as a recharacterization risk, not a technicality.

The S-Corp Election in Plain English

A single-member or multi-member LLC can elect to be taxed as an S-corporation by filing IRS Form 2553. The election requires that the entity meet the eligibility requirements under IRC § 1361 (one hundred or fewer shareholders, all U.S. persons or eligible entities, only one class of stock-equivalent membership interest).

The benefit of the election: distributions from an S-corp to the owner are NOT subject to self-employment tax. The owner must pay themselves a "reasonable compensation" as W-2 wages (subject to FICA), and the remainder of profits can be distributed without SE tax.

The cost of the election: the LLC must run payroll for the owner-employee, file quarterly Form 941, file annual Form 940, file annual W-2s and W-3s, and pay the employer share of FICA on the W-2 wages. State payroll filings are also required.

The "reasonable compensation" standard is the critical constraint. The IRS scrutinizes S-corp owner-employee compensation against industry benchmarks. The leading case is David E. Watson, P.C. v. United States (S.D. Iowa 2010, affirmed 668 F.3d 1008 8th Cir. 2012), where a CPA paid himself $24,000 in W-2 wages while taking $203,000 in distributions; the IRS recharacterized; the court held that $91,044 was the reasonable compensation amount. The Watson case is the standard cite for the "what is reasonable" question.

Mark Kohler, who has written extensively on S-corp election strategy for small business owners, makes the practical point in his published commentary: "The S-corp election is a tax-saving structure, but the saving only holds if you pay yourself a defensible salary. The IRS does not care what you wanted to pay yourself; the IRS cares what comparable employees in your industry, region, and role earn." (Source: Mark J. Kohler published commentary, https://markjkohler.com.)

What Payroll Software Actually Has to Do for an S-Corp LLC

For a single-member LLC with S-corp election (one owner-employee, no other employees), the payroll system needs to:

1. Calculate gross W-2 wages from the chosen reasonable compensation amount.
2. Calculate federal income tax withholding (based on W-4 elections).
3. Calculate state income tax withholding (state-dependent).
4. Calculate the employee share of FICA (6.2% Social Security + 1.45% Medicare, plus 0.9% additional Medicare on wages above $200,000 single).
5. Calculate the employer share of FICA (matching 6.2% + 1.45%).
6. Calculate FUTA (federal unemployment tax) on first $7,000 of wages.
7. Calculate state unemployment insurance (SUI) (state-dependent, rates and base wage vary).
8. Process the actual payroll payment (direct deposit to the owner's account).
9. Remit federal taxes (941 deposits) on the IRS schedule.
10. Remit state taxes on the state schedule.
11. File quarterly 941.
12. File annual 940 (FUTA).
13. File annual W-2 and W-3.
14. File state quarterly and annual returns.

For a single-employee S-corp LLC, items 1 through 14 are deterministic and well-suited to automation.

Side-by-Side Comparison

(All factors verified April 2026 from each provider's published pricing pages.)

When Gusto Is the Right Choice

Gusto fits the LLC owner who: - Will likely add employees beyond the owner-employee within twenty-four months - Wants integrated health benefits administration - Values the broader HR-suite features (onboarding, time tracking, performance reviews) - Is comfortable with the higher monthly cost in exchange for the broader feature set

Gusto's S-corp owner workflow is well-documented, and Gusto explicitly markets to S-corp owner-only LLCs as one of its core customer profiles (verified April 2026 from gusto.com).

When OnPay Is the Right Choice

OnPay fits the LLC owner who: - Is comfortable with payroll-only software without the broader HR suite - Values the slightly cleaner pricing structure - Operates in an industry where OnPay has specific expertise (OnPay markets to agriculture and restaurants among others) - Wants a balanced feature set without paying for HR features they will not use

OnPay's S-corp owner setup is straightforward and well-documented (verified April 2026 from onpay.com).

When Patriot Software Is the Right Choice

Patriot Software fits the LLC owner who: - Wants the lowest monthly cost option among the three - Is comfortable choosing between Basic Payroll (DIY tax filing) and Full Service Payroll (Patriot files) - Has an accountant who is doing the tax filings independently and just needs the payroll calculation engine - Is operating in a low-complexity payroll situation (one or two employees, single state, no benefits)

For a single-owner-employee S-corp LLC in one state, Patriot Software Full Service tier is consistently cited as the lowest-cost full-service option among major payroll providers (verified April 2026 across published comparisons).

What Most Comparisons Miss

Three patterns in published comparisons:

1. Treating the per-employee fee as the only cost variable. For a single-employee S-corp LLC, the base monthly fee dominates total cost, not the per-employee fee. The comparison should weight base fees more heavily.
2. Skipping the multi-state surcharge. All three providers charge additional fees for payroll in multiple states. An LLC owner who works remotely from a different state than the LLC's formation state may trigger nexus and need multi-state payroll. The published comparisons often ignore this.
3. Treating health benefits as a tie-breaker without quantifying. Gusto's health benefits administration is structurally meaningful for owners who will use it. For a single-owner-employee LLC where the owner gets health insurance through a spouse, this feature is irrelevant.

The Reasonable Compensation Question (Where the Software Cannot Help)

None of the three providers will tell you what your reasonable compensation should be. The number depends on industry, geography, your specific role and credentials, the size and complexity of the business, and the time you spend on owner-employee work versus passive ownership.

Common methodologies for setting reasonable compensation: - Bureau of Labor Statistics wage data for comparable positions in the geographic area (bls.gov/oes) - RC Reports or ChooseRC software (paid services that compute reasonable compensation based on multiple data sources) - Direct comparison to W-2 wages for similar W-2 employees in the same industry - Documentation of time allocated to owner-employee work vs passive ownership

Mat Sorensen of Directed IRA, who advises self-directed IRA and small-business owners, makes the broader point: "The reasonable compensation number is not a precise figure. It is a defensible range. Document the basis for the number you choose, and update the documentation annually." (Source: Directed IRA published commentary, https://directedira.com.) The defensibility is what matters in audit.

Our Recommendation by Customer Profile

For a single-owner-employee S-corp LLC with no plans to hire employees in the near term and no need for health benefits: Patriot Software Full Service. Lowest cost, full-service tax filing, sufficient for the use case.

For a single-owner-employee S-corp LLC with plans to hire within twenty-four months OR with need for health benefits administration: Gusto. The higher base cost is worth it for the integrated functionality.

For a single-owner-employee S-corp LLC in an industry where OnPay has specific expertise (agriculture, restaurant) or for an owner who values the OnPay user experience: OnPay. Balanced feature set without the HR overhead.

Frequently Asked Questions

Do I need payroll software if I am the only employee in my S-corp LLC?

Yes. Even a single owner-employee S-corp LLC must run formal payroll: W-2 wages, federal and state withholding, FICA, FUTA, SUI, quarterly 941 filings, annual 940, annual W-2 and W-3. Payroll software automates the calculation and filing. Manual processing is possible but error-prone and not recommended.

How much does payroll software cost for a single-owner-employee S-corp LLC?

In April 2026, the lowest full-service option among the three providers compared is roughly $20 to $30 per month total (base fee plus one-employee fee). Mid-tier options run roughly $45 to $55 per month. Higher tiers with broader HR functionality run higher.

What is reasonable compensation for an S-corp owner?

There is no single answer. The IRS standard is the compensation that comparable employees in the same industry, region, and role would earn. Methodologies for setting and documenting the number include Bureau of Labor Statistics wage data, RC Reports, or comparable W-2 wage data for similar positions. Document the basis annually.

Can I file my own S-corp payroll without software?

Possible but not recommended. The federal and state filings, the deposit schedules, the form filings, and the year-end W-2 / W-3 process create multiple opportunities for missed deadlines and IRS penalties. Payroll software at $20 to $50 per month is one of the highest-leverage software purchases for an S-corp LLC.

What if I am also an employee of another company that already pays me a W-2?

Your S-corp LLC still needs to run its own payroll for any W-2 wages it pays you. The W-2 wages from your other employer do not count toward your reasonable compensation from the S-corp LLC. The S-corp's payroll is structurally separate.

Independent Curator Disclosure: State LLC Service is an independent business formation service. From time to time we reference public works by industry experts, attorneys, and tax professionals, including but not limited to Toby Mathis, Garrett Sutton, Mark Kohler, Clint Coons, Mat Sorensen, Lee Phillips, and others, for educational and curation purposes only. We have researched and synthesized their publicly available content to help our customers understand modern asset protection and entity strategy. This material does not represent any endorsement, sponsorship, affiliation, or formal partnership with these individuals or their respective firms. All trademarks, names, and likenesses cited remain the property of their respective owners. Customers should consult licensed counsel for advice tailored to their specific situation.

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