www.corpnet.com
Open in
urlscan Pro
2600:9000:2510:3000:14:8209:d1c0:93a1
Public Scan
URL:
https://www.corpnet.com/blog/do-llc-owners-pay-self-employment-tax/
Submission: On April 19 via manual from US — Scanned from US
Submission: On April 19 via manual from US — Scanned from US
Form analysis 9 forms found in the DOM
GET https://www.corpnet.com/
<form role="search" method="get" class="et_pb_searchform" action="https://www.corpnet.com/">
<div> <label class="screen-reader-text" for="s">Search for:</label> <input type="text" name="s" placeholder="Search" class="et_pb_s"> <input type="hidden" name="et_pb_searchform_submit" value="et_search_proccess"> <input type="hidden"
name="et_pb_include_posts" value="yes"> <input type="hidden" name="et_pb_include_pages" value="yes"> <input type="submit" value="Search" class="et_pb_searchsubmit" style=""></div>
</form>GET https://www.corpnet.com/
<form role="search" method="get" class="et_pb_searchform" action="https://www.corpnet.com/">
<div> <label class="screen-reader-text" for="s">Search for:</label> <input type="text" name="s" placeholder="Search" class="et_pb_s"> <input type="hidden" name="et_pb_searchform_submit" value="et_search_proccess"> <input type="hidden"
name="et_pb_include_posts" value="yes"> <input type="hidden" name="et_pb_include_pages" value="yes"> <input type="submit" value="Search" class="et_pb_searchsubmit" style=""></div>
</form>GET https://www.corpnet.com/
<form role="search" method="get" class="et_pb_searchform" action="https://www.corpnet.com/">
<div> <label class="screen-reader-text" for="s">Search for:</label> <input type="text" name="s" placeholder="Search" class="et_pb_s"> <input type="hidden" name="et_pb_searchform_submit" value="et_search_proccess"> <input type="hidden"
name="et_pb_include_posts" value="yes"> <input type="hidden" name="et_pb_include_pages" value="yes"> <input type="submit" value="Search" class="et_pb_searchsubmit" style=""></div>
</form>GET https://www.corpnet.com/
<form role="search" method="get" class="et_pb_searchform" action="https://www.corpnet.com/">
<div> <label class="screen-reader-text" for="s">Search for:</label> <input type="text" name="s" placeholder="Search" class="et_pb_s"> <input type="hidden" name="et_pb_searchform_submit" value="et_search_proccess"> <input type="hidden"
name="et_pb_include_posts" value="yes"> <input type="hidden" name="et_pb_include_pages" value="yes"> <input type="submit" value="Search" class="et_pb_searchsubmit" style=""></div>
</form>GET https://www.corpnet.com/
<form role="search" method="get" class="et_pb_searchform" action="https://www.corpnet.com/">
<div> <label class="screen-reader-text" for="s">Search for:</label> <input type="text" name="s" placeholder="Search" class="et_pb_s"> <input type="hidden" name="et_pb_searchform_submit" value="et_search_proccess"> <input type="hidden"
name="et_pb_include_posts" value="yes"> <input type="hidden" name="et_pb_include_pages" value="yes"> <input type="submit" value="Search" class="et_pb_searchsubmit" style=""></div>
</form>GET https://www.corpnet.com/
<form role="search" method="get" class="et_pb_menu__search-form" action="https://www.corpnet.com/"> <input type="search" class="et_pb_menu__search-input" placeholder="Search …" name="s" title="Search for:"> </form>GET https://www.corpnet.com/
<form role="search" method="get" class="et_pb_menu__search-form" action="https://www.corpnet.com/"> <input type="search" class="et_pb_menu__search-input" placeholder="Search …" name="s" title="Search for:"> </form>POST /blog/do-llc-owners-pay-self-employment-tax/#gf_26
<form method="post" enctype="multipart/form-data" target="gform_ajax_frame_26" id="gform_26" class="js-newsletter" action="/blog/do-llc-owners-pay-self-employment-tax/#gf_26" data-formid="26" novalidate="">
<div class="gform-body gform_body">
<div id="gform_fields_26" class="gform_fields top_label form_sublabel_below description_below">
<div id="field_26_3" class="gfield gfield--type-text gfield--width-full js-newsletterFirstName gfield_contains_required field_sublabel_below gfield--no-description field_description_below gfield_visibility_visible" data-js-reload="field_26_3">
<label class="gfield_label gform-field-label" for="input_26_3">First name<span class="gfield_required"><span class="gfield_required gfield_required_text">(Required)</span></span></label>
<div class="ginput_container ginput_container_text"><input name="input_3" id="input_26_3" type="text" value="" class="large" placeholder="First Name" aria-required="true" aria-invalid="false"></div>
</div>
<div id="field_26_4" class="gfield gfield--type-text gfield--width-full js-newsletterLastName gfield_contains_required field_sublabel_below gfield--no-description field_description_below gfield_visibility_visible" data-js-reload="field_26_4">
<label class="gfield_label gform-field-label" for="input_26_4">Last name<span class="gfield_required"><span class="gfield_required gfield_required_text">(Required)</span></span></label>
<div class="ginput_container ginput_container_text"><input name="input_4" id="input_26_4" type="text" value="" class="large" placeholder="Last Name" aria-required="true" aria-invalid="false"></div>
</div>
<div id="field_26_1" class="gfield gfield--type-email js-newsletterEmail gfield_contains_required field_sublabel_below gfield--no-description field_description_below gfield_visibility_visible" data-js-reload="field_26_1"><label
class="gfield_label gform-field-label" for="input_26_1">Email<span class="gfield_required"><span class="gfield_required gfield_required_text">(Required)</span></span></label>
<div class="ginput_container ginput_container_email"> <input name="input_1" id="input_26_1" type="email" value="" class="large" placeholder="Email" aria-required="true" aria-invalid="false"></div>
</div>
<div id="field_26_5" class="gfield gfield--type-captcha gfield--width-full field_sublabel_below gfield--no-description field_description_below gfield_visibility_visible" data-js-reload="field_26_5"><label class="gfield_label gform-field-label"
for="input_26_5">CAPTCHA</label>
<div id="input_26_5" class="ginput_container ginput_recaptcha gform-initialized" data-sitekey="6Le4tpgUAAAAACEwG6AhqxpPt2-d5Eof1LPNVwDY" data-theme="light" data-tabindex="0" data-badge="">
<div style="width: 304px; height: 78px;">
<div><iframe title="reCAPTCHA" width="304" height="78" role="presentation" name="a-tm3qqfycym7c" frameborder="0" scrolling="no"
sandbox="allow-forms allow-popups allow-same-origin allow-scripts allow-top-navigation allow-modals allow-popups-to-escape-sandbox allow-storage-access-by-user-activation"
src="https://www.google.com/recaptcha/api2/anchor?ar=1&k=6Le4tpgUAAAAACEwG6AhqxpPt2-d5Eof1LPNVwDY&co=aHR0cHM6Ly93d3cuY29ycG5ldC5jb206NDQz&hl=en&v=QoukH5jSO3sKFzVEA7Vc8VgC&theme=light&size=normal&cb=bb1x0jvxhk7b"></iframe>
</div><textarea id="g-recaptcha-response" name="g-recaptcha-response" class="g-recaptcha-response"
style="width: 250px; height: 40px; border: 1px solid rgb(193, 193, 193); margin: 10px 25px; padding: 0px; resize: none; display: none;"></textarea>
</div><iframe style="display: none;"></iframe>
</div>
</div>
</div>
</div>
<div class="gform_footer top_label"> <input type="submit" id="gform_submit_button_26" class="gform_button button et_pb_button" value="Subscribe"
onclick="if(window["gf_submitting_26"]){return false;} if( !jQuery("#gform_26")[0].checkValidity || jQuery("#gform_26")[0].checkValidity()){window["gf_submitting_26"]=true;} "
onkeypress="if( event.keyCode == 13 ){ if(window["gf_submitting_26"]){return false;} if( !jQuery("#gform_26")[0].checkValidity || jQuery("#gform_26")[0].checkValidity()){window["gf_submitting_26"]=true;} jQuery("#gform_26").trigger("submit",[true]); }">
<input type="hidden" name="gform_ajax" value="form_id=26&title=1&description=1&tabindex=0&theme=data-form-theme='gravity-theme'"> <input type="hidden" class="gform_hidden" name="is_submit_26" value="1"> <input type="hidden"
class="gform_hidden" name="gform_submit" value="26"> <input type="hidden" class="gform_hidden" name="gform_unique_id" value=""> <input type="hidden" class="gform_hidden" name="state_26"
value="WyJbXSIsIjIzN2E2NWJiZWM4NWUwOWE3NTExMTE0MzIxYmIwNjM1Il0="> <input type="hidden" class="gform_hidden" name="gform_target_page_number_26" id="gform_target_page_number_26" value="0"> <input type="hidden" class="gform_hidden"
name="gform_source_page_number_26" id="gform_source_page_number_26" value="1"> <input type="hidden" name="gform_field_values" value=""></div>
<p style="display: none !important;" class="akismet-fields-container" data-prefix="ak_"><label>Δ<textarea name="ak_hp_textarea" cols="45" rows="8" maxlength="100"></textarea></label><input type="hidden" id="ak_js_1" name="ak_js"
value="1713550728699"></p>
</form>GET https://www.corpnet.com/
<form role="search" method="get" class="et_pb_searchform" action="https://www.corpnet.com/">
<div> <label class="screen-reader-text" for="s">Search for:</label> <input type="text" name="s" placeholder="Search" class="et_pb_s"> <input type="hidden" name="et_pb_searchform_submit" value="et_search_proccess"> <input type="hidden"
name="et_pb_include_posts" value="yes"> <input type="hidden" name="et_pb_include_pages" value="yes"> <input type="submit" value="Search" class="et_pb_searchsubmit" style=""></div>
</form>Text Content
Ready to start your business today and need guidance? Get a free Consultation!
Search for:
Business Structures & Entity Types
* C Corporation
* S Corporation
* Limited Liability Company (LLC)
* Limited Liability Partnership (LLP)
* Professional Limited Liability Company (PLLC)
* Professional Corporation
* Nonprofit Corporation
* Sole Proprietorship
* Partnership
Services & Supplies
* Registered Agent Services
* Corporate Supplies
* Express Filing Services
Business Names
* Doing Business As (DBAs)
* Business Name Search
* Business Name Reservations
* Comprehensive Trademark Search
Licenses, Permits, & Tax Filings
* S Corp Elections
* 501C (3) Filings
* Federal Tax ID Numbers (EINs)
* Sales & Use Tax Permits
* Payroll Tax Registration (SUI/SIT)
* Business Licenses & Permits
* Secretary of State Filings
Tools & Wizards
* Business Structure Wizard
* Start a Business FAQs
* A-Z Services and Pricing
Incorporate Now
Need help with business filings and corporate compliance? Get a free
Consultation!
Search for:
Business Filings
* Filing Service Overview
* Doing Business As (DBAs)
* Change a Registered Agent
* Articles of Amendments
* Entity Conversions
* Domestication (LLCs & Corps)
* Foreign Qualifications
* Reinstatements
* Articles of Dissolution (Close a Business)
Compliance Services
* Nationwide Registered Agent Services
* Initial Reports
* Annual Reports
* BOI Reporting
* Annual Meeting Minutes
* Certificates Of Good Standing
* Certified Copies Of Documents
* Apostille
Corporate Supplies
* Corporate and LLC Kits
* Corporate & LLC Seal Embosser
* LLC Member Certificates
* Corporate Stock Certificates
Forms & Templates
* Corporate Minutes and Bylaws
* Meeting Minutes Templates
* LLC Operating Agreement
Tools & Wizards
* Free Compliance Check
* Run a Business FAQs
* A-Z Services and Pricing
* Compliance Checklist
Monitor My Business
×
Need more education on choosing a business structure? Check out our Business
Structure Wizard!
Search for:
LLCs & Corporations
* Why Incorporate?
* Tax Benefits of Incorporating
* Types of Corporations
* Incorporate
* Types of LLCs
* Form an LLC
Compare Entity Types
* Sole Proprietorship vs. Partnership
* Sole Proprietorship vs. LLC
* LLC vs. Partnership
* LLC vs. C Corporation
* C Corporation vs. S Corporation
* S Corporation vs. LLC
* DBA vs. LLC
Browse Articles & Resources
* Latest Articles
* Popular Articles
* State-by-State Resources
* Educational Videos
* Podcasts and Webinars
Free Guides & Templates
* Starting a Business Checklist
* Free Incorporation Guide
* Free LLC Guide
* Free DBA Guide
Incorporate Now
100% satisfaction guaranteed or we will refund 100% of our service fees with no
questions asked!
Search for:
About CorpNet
* About Us
* Leadership Team
* The CorpNet Guarantee
* Careers
* Contact Us
Why CorpNet
* Compare CorpNet
* CorpNet Reviews
* Nellie’s Small Business Corner
* CorpNet Press Center
Featured In...
Interested in partnering with us? Schedule a call!
Search for:
Program Overview
* Partner Program Introduction
* Ongoing Partner Support
* Business Formation Guide
* Terms of Use and Agreement
Program Options
* How it Works
* Revenue Opportunities
* Reseller vs. Referral
Partner Resources
* Connect to Our API
* Video and Webinars
* Checklists, Guides, and Tools
* Marketing Materials and Resources
* Client Questionnaires
* Spanish Translations
Tools & Wizards
* Partner Program FAQs
* Program Informational Video
Apply Now
Account Holder Name
Account Holder Email
Account Manager
Ronald DayEmailPhone
Contact
CorpNet Support
* 1.888.449.2638
* support@corpnet.com
* sales@corpnet.com
Account
* Dashboard
* My Orders
* Account Settings
Log Out
×
* Start a Business
* Business Structures & Entity Types
* C Corporation
* S Corporation
* Limited Liability Company (LLC)
* Limited Liability Partnership (LLP)
* Professional Corporation
* Nonprofit Corporation
* Sole Proprietorship
* Partnership
* Services & Supplies
* Registered Agent Services
* Corporate Supplies
* Express Filing Services
* Names & Trademark Protection
* Doing Business As (DBAs)
* Business Name Search
* Business Name Reservations
* Trademark Search
* Licenses, Permits, & Tax Filings
* S Corp Elections
* 501C (3) Filings
* Federal Tax ID Numbers (EINs)
* Sales & Use Tax Permits
* Payroll Tax Registration (SUI/SIT)
* Business Licenses & Permits
* Secretary of State Filings
* Run a Business
* Business Filings
* Filing Service Overview
* Doing Business As (DBAs)
* Change a Registered Agent
* Articles of Amendments
* Convert a Business Structure
* Foreign Qualifications
* Reinstatements
* Articles of Dissolution (Close a Business)
* Compliance Services
* Registered Agent Services
* Initial Reports
* Annual Reports
* Annual Meeting Minutes
* Certificates of Good Standing
* Certified Copies of Documents
* Apostille
* Corporate Supplies
* Corporate and LLC Kits
* Corporate & LLC Seal Embosser
* LLC Member Share Certificates
* Corporate Stock Certificates
* Forms & Templates
* Corporate Minutes and Bylaws
* Meeting Minutes Templates
* LLC Operating Agreement
* Learning Center
* LLCs & Corporations
* Start a Business
* Why Incorporate?
* Tax Benefits of Incorporating
* Incorporate
* Form an LLC
* Compare Entity Types
* Sole Proprietorship vs. Partnership
* Types of Corporations
* LLC vs. Corporation
* C Corporation vs. S Corporation
* Single Member vs. Multiple Member LLC
* Member vs. Manager-Managed LLC
* Educational Content
* Latest Articles
* Popular Articles
* State-by-State Resources
* Podcasts and Webinars
* Educational Videos
* Why Us
* About CorpNet
* About Us
* Leadership Team
* Careers
* Contact Us
* Why CorpNet
* The CorpNet Guarantee
* Compare CorpNet
* CorpNet Reviews
* Nellie’s Small Business Corner
* CorpNet Press Center
* Partner With Us
* Program Overview
* Ongoing Partner Support
* Business Formation Guide
* Partner Program FAQs
* Terms of Use and Agreement
* Program Options
* How it Works
* Revenue Opportunities
* Reseller vs. Referral
* Partner Resources
* Checklists, Guides, and Tools
* Marketing Materials and Resources
* Client Questionnaires
* Videos and Webinars
* Spanish Translations
* Login
* 1.888.449.2638
* My Dashboard
Search
* Start a Business
* Business Structures & Entity Types
* C Corporation
* S Corporation
* Limited Liability Company (LLC)
* Limited Liability Partnership (LLP)
* Professional Corporation
* Nonprofit Corporation
* Sole Proprietorship
* Partnership
* Services & Supplies
* Registered Agent Services
* Corporate Supplies
* Express Filing Services
* Names & Trademark Protection
* Doing Business As (DBAs)
* Business Name Search
* Business Name Reservations
* Trademark Search
* Licenses, Permits, & Tax Filings
* S Corp Elections
* 501C (3) Filings
* Federal Tax ID Numbers (EINs)
* Sales & Use Tax Permits
* Payroll Tax Registration (SUI/SIT)
* Business Licenses & Permits
* Secretary of State Filings
* Run a Business
* Business Filings
* Filing Service Overview
* Doing Business As (DBAs)
* Change a Registered Agent
* Articles of Amendments
* Convert a Business Structure
* Foreign Qualifications
* Reinstatements
* Articles of Dissolution (Close a Business)
* Compliance Services
* Registered Agent Services
* Initial Reports
* Annual Reports
* Annual Meeting Minutes
* Certificates of Good Standing
* Certified Copies of Documents
* Apostille
* Corporate Supplies
* Corporate and LLC Kits
* Corporate & LLC Seal Embosser
* LLC Member Share Certificates
* Corporate Stock Certificates
* Forms & Templates
* Corporate Minutes and Bylaws
* Meeting Minutes Templates
* LLC Operating Agreement
* Learning Center
* LLCs & Corporations
* Start a Business
* Why Incorporate?
* Tax Benefits of Incorporating
* Incorporate
* Form an LLC
* Compare Entity Types
* Sole Proprietorship vs. Partnership
* Types of Corporations
* LLC vs. Corporation
* C Corporation vs. S Corporation
* Single Member vs. Multiple Member LLC
* Member vs. Manager-Managed LLC
* Educational Content
* Latest Articles
* Popular Articles
* State-by-State Resources
* Podcasts and Webinars
* Educational Videos
* Why Us
* About CorpNet
* About Us
* Leadership Team
* Careers
* Contact Us
* Why CorpNet
* The CorpNet Guarantee
* Compare CorpNet
* CorpNet Reviews
* Nellie’s Small Business Corner
* CorpNet Press Center
* Partner With Us
* Program Overview
* Ongoing Partner Support
* Business Formation Guide
* Partner Program FAQs
* Terms of Use and Agreement
* Program Options
* How it Works
* Revenue Opportunities
* Reseller vs. Referral
* Partner Resources
* Checklists, Guides, and Tools
* Marketing Materials and Resources
* Client Questionnaires
* Videos and Webinars
* Spanish Translations
* Login
* 1.888.449.2638
* My Dashboard
* Start a Business
* Run a Business
* Learning Center
* Why Us
* Partner With Us
* 1.888.449.2638
* Login
* My Account
Search
* Start a Business
* Run a Business
* Learning Center
* Why Us
* Partner With Us
* 1.888.449.2638
* Login
* My Account
Home » Blog » Ongoing Management and Protection » Do LLC Owners Pay
Self-Employment Tax?
Posted February 17, 2023
| Updated April 5, 2023
DO LLC OWNERS PAY SELF-EMPLOYMENT TAX?
Many small business owners choose to operate their companies under the LLC
business structure. They do so with good reason! The LLC offers liability
protection to its owners (members), tax flexibility, and compliance simplicity.
However, that tax flexibility may cause some confusion for entrepreneurs. One of
the tax-related topics that people often ask about is if LLC members have to pay
self-employment tax. In this article, I’m going to cover that question, along
with many others related to the subject.
FAQS ABOUT LLCS AND SELF-EMPLOYMENT TAX
IS SELF-EMPLOYMENT TAX THE SAME AS INCOME TAX?
Self-employment tax is a federal tax levied on a self-employed person’s income,
but it is not the same as federal income tax. It is a separate and additional
15.3% tax that some business owners (sole proprietors, general partners, and
most LLC members) must pay. The self-employment tax consists of a 12.4% Social
Security tax and a 2.9% Medicare tax.
WHY DO LLC MEMBERS HAVE TO PAY SELF-EMPLOYMENT TAX?
Self-employment tax ensures that self-employed people pay Social Security and
Medicare taxes that would otherwise be withheld by an employer through payroll
taxes.
When someone works for an employer, half of the Social Security and Medicare
taxes (known as FICA tax) are withheld from their wages. The employer must
submit that money and pay the other half of the FICA tax to the IRS.
FICA doesn’t apply to Limited Liability Company owners, though. For tax
purposes, an LLC is considered the same tax entity as its owners, and all tax
obligations flow through to the individual members. LLC members are not
considered employees and do not receive paychecks from which FICA is withheld.
They are considered self-employed and required to pay Social Security and
Medicare taxes equal to what is collected from businesses and their employees.
So, the individual owners rather than the LLC are responsible for paying all of
the 15.3% self-employment tax. Half of the self-employment tax paid by
self-employed individuals can be deducted as a business expense.
IF AN LLC MEMBER IS INACTIVE IN A BUSINESS, IS HE SUBJECT TO SELF-EMPLOYMENT
TAX?
No. Self-employment tax only applies to active members.
IS THERE A LIMIT ON HOW MUCH SELF-EMPLOYMENT TAX YOU HAVE TO PAY?
Yes and no. For 2022, only the first $177,000 of an LLC member’s net earnings
are subject to the Social Security portion of self-employment tax.
The 2.9% Medicare portion of self-employment tax applies to all of an individual
taxpayer’s net earnings. In fact, if individuals’ taxable income exceeds a
certain threshold, they must pay an additional 0.9% Medicare Tax. The thresholds
vary by filing status:
* Married filing jointly – $250,000
* Single – $200,000
IS SELF-EMPLOYMENT TAX HANDLED THE SAME FOR SINGLE-MEMBER LLCS AND MULTI-MEMBER
LLCS?
The Single-Member LLC and Self-Employment Tax – A single-member LLC is
classified as a disregarded entity, and the IRS treats them the same as a sole
proprietorship. In other words, the company itself doesn’t pay income-related
taxes. Owners of a single-member LLC are not employees and instead must pay
self-employment tax on their earnings from the business.
Multi-member LLCs and Self-Employment Taxes – Generally, the IRS treats
multi-member LLCs as partnerships. Each member of a multi-member LLCs must pay
self-employment taxes on their share of the LLC’s profits. Even if LLC members
leave some of their distributive share in the business, they must pay
self-employment tax on their entire share of the profits.
CAN LLC MEMBERS AVOID OR REDUCE SELF-EMPLOYMENT TAXES?
LLC owners choose to lessen their individual self-employment tax burden by
electing to have the LLC treated as a corporation for tax purposes.
Classification as an S Corporation (under Subchapter S of the Internal Revenue
Code) is what most LLCs select when aiming to minimize their owners’
self-employment taxes. S Corporations remain a pass-through tax entity, so
profits and losses of the business flow to the individual owners just as with a
disregarded entity LLC. However, LLC members who work in the business are
considered employees. As such, they only pay Social Security and Medicare taxes
on the wages and salaries they get from the business. Individuals pay half of
the FICA taxes, and the business pays the other half.
You might be wondering how this can save money since, ultimately, they’re paying
the same percentage in FICA taxes as they would for self-employment taxes. Well,
after the owners who are set up as employees are paid a reasonable wage, any
profits given to them as distributions are not subject to Social Security and
Medicare taxes. They must still pay income tax on those profits but not FICA or
self-employment tax.
Alternatively, an LLC can choose to be taxed as a C Corporation (taxed under
Subchapter C of the Internal Revenue Code). A C Corp must report and pay income
tax on its profits. Business income does not flow through to owners’ individual
tax returns as it does with a disregarded entity LLC or an S Corporation. The C
Corp tax classification can reduce the business owners’ individual Social
Security and Medicare tax burden in the same way an S Corp does. Business owners
(shareholders) who work in the business are set up on payroll and pay half of
FICA taxes due on their wages and salaries. However, business owners should
consider how the double taxation that occurs with C Corporations will affect the
overall tax situation.
Read More About Payroll: What is Payroll?
What is double taxation? The business’s profits are first taxed on the
corporation (at the applicable corporate tax rates). Then, if the corporation
distributes profits as dividends to shareholders, the dividends get taxed again
on each shareholder’s personal tax statement at the applicable individual tax
rates.
LLCs that want to be taxed as a corporation must file additional forms with the
IRS:
* C Corporation – IRS Form 8832 for Entity Classification Election
* S Corporation – IRS Form 2553 for Election by a Small Business Corporation
I strongly advise that business owners talk with both an attorney and tax
professional for guidance in selecting the most favorable business structure and
tax election for their situation.
IS THERE ANY LLC INCOME THAT IS EXEMPT FROM SELF-EMPLOYMENT TAX?
Self-employment tax does not get levied on passive income that LLC owners earn.
The IRS recognizes two kinds of passive business activity:
* Trade or business activities in which you don’t materially participate during
the year.
* Rental activities, even if you do not materially participate in them, unless
you’re a real estate professional.
Material Participation
The IRS considers all of the following activities material participation:
* The individual participated in the activity for more than 500 hours during
the tax year.
* The individual’s participation was substantially all of the participation in
the activity of all individuals for the tax year. This includes the
participation of individuals who didn’t own any interest in the activity.
* The individual participated in the activity for more than 100 hours during
the tax year and participated at least as much as other individuals
(including those who didn’t own an interest in the activity) for the year.
* The individual materially participated in the activity (other than by meeting
this fifth criterium) for any five (consecutive or not) of the last ten
preceding tax years.
* The individual participated in the activity regularly, continuously, and
substantially during the year.
Generally, LLC members are hands-on in running their businesses, so their degree
of involvement in activities is almost always considered material participation.
Rental Activities
This second type of passive income is more common with LLCs. People sometimes
use the LLC business structure, which shields them from personal liability
risks, for rental properties that they own. Rental income is not subject to
self-employment tax. (Note that the income does have to be reported on the
individual’s income tax return.)
HOW DO LLC MEMBERS PAY SELF-EMPLOYMENT TAX?
LLC owners pay self-employment taxes by making estimated tax payments quarterly
throughout the year (in April, June, September, and January). Those estimated
tax payments include both federal income tax and self-employment tax. It can be
helpful for LLC members to talk with an accountant or tax advisor at the start
of the current tax year to estimate how much tax they will owe. Then, they can
calculate how much they should pay on a quarterly basis. The actual payments
they make each quarter may need to be adjusted if the LLC’s profits are
significantly lower or higher than anticipated.
When LLC owners file their Form 1040 income tax return, they submit Schedule SE
(Self-Employment Tax with it. Schedule SE is used to calculate and report what
the individual owed in self-employment taxes. LLC members will need to use some
of the information from their Schedule C (or Schedule K-1 if a multi-member
LLC), which also gets filed with Form 1040, when completing Schedule SE.
NEXT STEPS
I recommend that LLC members talk with an accountant or tax professional. It’s
helpful to gain insight from someone who understands all the ins and outs of
self-employment tax and all of the other taxes (federal, state, and local) that
LLCs must pay. Staying current with tax payments is one of the many things
necessary to keep a business in good standing with the IRS, Secretary of State
Office, and local government.
And remember, CorpNet is always here to help entrepreneurs fulfill their
business formation and compliance requirements. We prepare and file business
registration paperwork with the state, business entity conversion paperwork,
Forms 8832 and 2553 to elect taxation as an S Corporation or C Corporation, EIN
applications, state sales tax license registrations, and much more.
NEED HELP REGISTERING YOUR LLC?
Registering your new Limited Liability Company with CorpNet is quick and your
satisfaction is guaranteed. Whether you’re forming a new LLC or converting an
existing business to an LLC, we can handle all the paperwork for you.
Get Started
Like the article? Share it with others!
Share On Facebook
Share On X
Share On Linkedin
Share On Reddit
Share Via Email
NELLIE AKALP
Nellie Akalp is an entrepreneur, small business expert, speaker, and mother of
four amazing kids. As CEO of CorpNet.com, she has helped more than half a
million entrepreneurs launch their businesses. Akalp is nationally recognized as
one of the most prominent experts on small business legal matters, contributing
frequently to outlets like Entrepreneur, Forbes, Huffington Post, Mashable, and
Fox Small Business. A passionate entrepreneur herself, Akalp is committed to
helping others take the reigns and dive into small business ownership. Through
her public speaking, media appearances, and frequent blogging, she has developed
a strong following within the small business community and has been honored as a
Small Business Influencer Champion three years in a row.
ARE YOU READY TO START YOUR BUSINESS?
Explore our business formation and compliance services ->
FREE GUIDES & TEMPLATES
* Starting A Business Checklist
* Free Incorporation Guide
* Free LLC Guide
* Free DBA Guide
* Meeting Minutes Templates
TRENDING ARTICLES
* Sole Proprietorship vs. Partnership
* Sole Proprietorship vs. LLC
* LLC vs. Partnership
* S Corporation vs. LLC
* Can I Use a Home Address for My LLC?
* Does Your Business Need a DBA?
* How to Add a DBA to an LLC
* Can You Have Multiple Businesses Under One LLC?
* How to Start a Business in the United States as a Foreigner
* What Is a Registered Agent?
* 10 Legal Documents You Must Have to Start a Small Business
BLOG CATEGORIES
* Seed and Development
* Startup and Launch
* Growth and Expansion
* Ongoing Management and Protection
* Crisis Management
* Maturity and Exit
* Events and Announcements
* Partner Program
* Women In Business
EXPLORE MORE BLOG POSTS
DO YOU HAVE A DOMESTIC OR FOREIGN LLC?
A domestic and foreign LLC refers to the state where the LLC is created.
Registering your business as a foreign LLC (also known as a foreign
qualification) is required under certain circumstances when you operate your
business outside of the state in which you’ve...
HOW TO OBTAIN A CERTIFICATE OF EXISTENCE FOR YOUR GEORGIA BUSINESS
If you own a Limited Liability Company, C Corporation, or other registered
business entity in Georgia and you want to open a business bank account, expand
your business into another state, seek funds from investors, or conduct certain
other business activities, you’ll...
COMPANY APPLICANT VS. BENEFICIAL OWNER
The Corporate Transparency Act’s Beneficial Ownership Information Reporting Rule
went into effect in January 2024, leaving many business owners wondering: Are
they required to submit a Beneficial Ownership Information (BOI) Report? What’s
the difference between...
SUBSCRIBE TO NEWSLETTER
Practical business and financial insights, lessons, perspectives, and know-how
brought right to your inbox.
First name(Required)
Last name(Required)
Email(Required)
CAPTCHA
Δ
Thank you for subscribing!
100% SATISFACTION GUARANTEED
Or we will refund 100% of our service fees, no questions asked!
Search for:
CORPNET INCORPORATED
31416 Agoura Rd. Suite 118
Westlake Village, CA 91361
Phone: +1-805-449-2638
Toll Free: +1-888-449-2638
Fax: +1-805-449-2639
Monday – Friday
7:00 am – 5:00 pm PST
info@corpnet.com
sales@corpnet.com
support@corpnet.com
COMPANY
About Us
Leadership Team
A-Z Services and Pricing
100% Satisfaction Guarantee
Compare CorpNet
CorpNet Reviews
CorpNet Coupons
Careers
Contact Us
GUIDES AND TEMPLATES
Starting A Business Checklist
Free Incorporation Guide
Free LLC Guide
Free DBA Guide
Get Press Coverage
How to Start a Blog
Social Media Tips
Meeting Minutes Templates
BLOG
Seed and Development
Startup and Launch
Growth and Expansion
Ongoing Management
Crisis Management
Maturity and Exit
The Accounting Industry
Events and Announcements
* Terms and Conditions
* Privacy Policy
* Sitemap
* Newsletter Subscription
CorpNet is a document filing service and cannot provide you with legal, tax, or
financial advice. CorpNet®, CorpNet.com, BizAlerts®, and the images of the
document with the orange arrow, are all Trademarks of CorpNet, Incorporated. Use
of our site, products, and/or services are governed by our Terms and Conditions
and Privacy Policy.
©2024 CorpNet, Incorporated. All Right Reserved
Notifications