PrintAccording to the Internal Revenue Service, members of limited liability companies are subject to self-employment taxes. In a nutshell, if you have an active LLC and are involved in the day-to-day running of the business, you must pay self-employment taxes.
But not all LLCs pay the same. The amount an LLC member pays in self-employment tax depends on the company’s tax structure. LLCs are state-chartered business entities and are not recognized by the IRS for federal tax purposes. Therefore, when it comes to tax time, your LLC is taxed as a sole proprietorship, a partnership, or a corporation by the IRS.
If you take no action, you will be taxed as a sole proprietorship if you are the only member of your LLC, or a partnership if your LLC has multiple members. In either case, you pay self-employment tax on the entire net income the company receives.
An LLC can also elect to file taxes as an S corporation. In this case, the shareholders pay self-employment taxes on only the amount of salary they take. So, for example, if you take a salary of $50,000, and you receive another $25,000 in disbursements from the S corp’s net income in a given year, you will pay self-employment tax on just the $50,000 you earned in salary.
If you are considered a sole proprietorship or partnership for tax purposes, however, you will pay self-employment taxes on the full $75,000 you received as your share of company earnings for that tax year.
As with any issue concerning taxes and the IRS, check with your attorney or accountant to make sure you have a copy of the latest rulings concerning LLCs and self-employment taxes.