This is general information about federal tax mechanics. It is not tax advice, and nothing here is a recommendation about what you should choose. We are not accountants and we are not a law firm. Every figure names its source and the date we checked it, so you can verify it rather than take our word — and any decision that turns on your own numbers belongs with a qualified accountant or tax professional.
The short answer
How you take money out of your LLC follows from how the LLC is taxed. There are four situations, and only two of them let you put yourself on payroll.
| How your LLC is taxed | Can you pay yourself a salary? | How the money actually moves |
|---|---|---|
| Single-member, no election — a disregarded entity | No | An owner’s draw: a transfer from the business account to your personal account. No payroll run, no withholding. |
| Multi-member, no election — a partnership | No | Distributions of your share, and guaranteed payments if the operating agreement provides a fixed amount irrespective of profit. |
| With an S corporation election | Yes — and it is required, not optional | W-2 wages for the services you perform, and distributions on top of them. |
| With a C corporation election | Yes, as an employee or officer | Wages, and separately dividends paid out of earnings and profits. |
That is the whole answer to the question as most people ask it. The rest of this page is about the part that costs money: what tax is owed on the profit, when it has to be paid, and the numbers involved.
A draw does not reduce what you are taxed on
This is the misunderstanding underneath the question, and it is the one that costs people real money at filing time.
The practical consequence is that leaving money in the business account does not defer anything. If the profit is there, it is taxed in the year it arises, whichever account it happens to be sitting in on 31 December.
The second consequence is that nothing is withheld. An employee has tax taken out of every payslip; an owner taking draws has not. That is what the instalment section below is about, and it is where most first-year owners get caught. What any of this means for your own numbers is a question for a qualified accountant or tax professional.
Self-employment tax, with the numbers
A default-classified LLC owner pays self-employment tax on the business’s net earnings. It is separate from income tax and it is usually the larger surprise.
| Figure | Source, and the date we checked it | |
|---|---|---|
| Self-employment tax rate | 15.3% | “The self-employment tax rate is 15.3%. The rate consists of two parts: 12.4% for social security (old-age, survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).” — IRS self-employment tax page, checked 17 August 2026 |
| Threshold at which it is owed | $400 of net earnings | Same page: “Your net earnings from self-employment (excluding church employee income) were $400 or more” |
| Social Security wage base | $184,500 for 2026 | “For earnings in 2026, this base limit is $184,500.” — IRS Topic no. 751, page last reviewed 20 January 2026 |
| Medicare wage base | None | “There’s no wage base limit for Medicare tax.” — IRS Topic no. 751 |
| Deduction against income tax | One-half of your self-employment tax | Schedule SE (Form 1040), line 13: “Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50).” |
The 12.4% Social Security component stops once your earnings pass the wage base. The 2.9% Medicare component does not stop at all. So the marginal rate on profit above the wage base is lower than the rate below it, which is a mechanical feature of the tax rather than anything you arrange.
Where the wage base is concerned, check which IRS page you are reading
Three different Social Security wage-base figures are sitting on IRS sources at the same time, and they are all correct for the year each one names.
| IRS source | Figure shown | Year it states |
|---|---|---|
| Topic no. 751, last reviewed 20 January 2026 | $184,500 | 2026 |
| Schedule SE (Form 1040), currently the 2025 form | $176,100 | 2025 |
| Self-employment tax page, last reviewed 27 June 2026 | $168,600 | 2024 |
The extra 0.9%, and the part that is commonly stated wrongly
Above certain thresholds an Additional Medicare Tax of 0.9% applies, and it reaches self-employment earnings as well as wages. Two things about it are routinely conflated.
- It is not the same as the 2.9% Medicare component. The 2.9% applies from the first dollar and is matched by an employer where there is one; the 0.9% applies only above the threshold and has no employer match.
- The figure you will most often see quoted — $200,000 “without regard to filing status” — is the rule for when an employer must start withholding it. It is not the taxpayer’s own threshold, which does vary by filing status and is set out in Form 8959.
One more thing worth knowing about the deduction: it reduces your income tax only. In the IRS’s words, “This deduction only affects your income tax. It does not affect either your net earnings from self-employment or your self-employment tax.” It does not make the self-employment tax itself smaller.
Paying it — the instalments, and when they are actually due
Because nothing is withheld from a draw, the tax is paid in instalments during the year on Form 1040-ES rather than in one payment at filing. The word the forms use is “installment” — Form 1040-ES does not describe these dates as quarterly anywhere across its sixteen pages, and neither does Publication 505. That is a note about vocabulary rather than a correction of anyone: the IRS uses “quarter” for them elsewhere on its own site.
| Instalment for the 2026 tax year | Due |
|---|---|
| 1st payment | 15 April 2026 |
| 2nd payment | 15 June 2026 — two months after the first, not three |
| 3rd payment | 15 September 2026 |
| 4th payment | 15 January 2027 — but see below |
Form 1040-ES states the exception on the last one directly: “You don’t have to make the payment due January 15, 2027, if you file your 2026 tax return by February 1, 2027, and pay the entire balance due with your return.”
How much has to be paid to avoid a penalty
Form 1040-ES sets out safe harbours. Meet one of them and no underpayment penalty applies, whatever your final liability turns out to be.
| Test | Pay at least | Of |
|---|---|---|
| Current-year test | 90% | the tax to be shown on your 2026 return |
| Prior-year test | 100% | the tax shown on your 2025 return, which must cover all 12 months |
| Prior-year test, higher income | 110% | the same prior-year figure, substituted for 100% |
| Farming or fishing | 66⅔% | substituted for 90%, where at least two-thirds of gross income for 2025 or 2026 comes from farming or fishing |
There is also an exception that catches first-year owners the right way round: “You don’t have to pay estimated tax for 2026 if you were a U.S. citizen or resident alien for all of 2025 and you had no tax liability for the full 12-month 2025 tax year.” If the LLC is your first business and you had no liability at all last year, the instalments may not apply to this year.
What happens if you underpay
The penalty is not a single year-end charge. Form 1040-ES describes it as “imposed on each underpayment for the number of days it remains unpaid” — so paying the whole year’s tax in April of the following year still leaves four late instalments accruing separately. The form also notes the penalty “may be waived under certain conditions”, pointing to the Instructions for Form 2210, and an annualised income instalment method exists for income that arrives unevenly through the year.
We are not publishing a penalty rate, because Form 1040-ES does not state one — it is set by statute and resets periodically. Your accountant or the current Form 2210 instructions will have the figure that applies.
If the LLC has more than one member
A multi-member LLC with no election is taxed as a partnership. It files Form 1065 and issues each member a Schedule K-1 showing their distributive share, which they report whether or not any cash was distributed.
There are two ways money reaches a working member, and they are not the same thing.
| What it is | Determined by | |
|---|---|---|
| Distribution | A payment of the member’s share of the business | The member’s share of profit, and the operating agreement |
| Guaranteed payment | A fixed amount for services, paid irrespective of whether the partnership made money | The IRS definition: payments “determined without regard to the partnership’s income” |
A guaranteed payment is the mechanism by which a working member of a multi-member LLC gets something that behaves like a regular wage without being one. It is not payroll: Publication 541 states that “Guaranteed payments are not subject to income tax withholding”, which is exactly why the instalment section above applies to them.
Whether an LLC member counts as a “limited partner” is unsettled
That exclusion in §1402(a)(13) turns on being a limited partner, and whether an LLC member qualifies has never been settled by regulation. Treasury proposed a definition in 1997 and never finalised it — a search of the Federal Register for rules defining “limited partner” for these purposes returns no final IRS rule at all.
We are not going to tell you which side of that line you fall on, because there is no authority that would let anyone tell you reliably. It is a live question, it turns on what you actually do in the business, and it is one of the clearest cases on this page for asking a qualified accountant or tax professional rather than reading an article.
The two elections, and what each one requires
An LLC can elect to be taxed as an S corporation or a C corporation. Both change federal tax treatment only — the entity remains an LLC under state law. Both make a salary available, and both make it compulsory rather than optional.
The S corporation election
A shareholder who works in the business is an employee of it. The IRS is direct about this: “When corporate officers perform a service for the corporation and receive or are entitled to payments, those payments are considered wages,” and “The fact that an officer is also a shareholder does not change this requirement.” So the route is W-2 wages for services, with distributions on top.
That brings a payroll obligation — registration, withholding, employment tax deposits and returns — which is a running administrative cost that does not exist for a default-classified LLC.
The election is also closed to some owners entirely. 26 U.S.C. §1361(b)(1)(C) provides that a small business corporation may not “have a nonresident alien as a shareholder”, and §7701(b)(1)(B) defines a nonresident alien as an individual who is “neither a citizen of the United States nor a resident of the United States”. The permitted set is therefore citizens and resident aliens. If you live outside the US and are not a US citizen, this route is not available to you.
The C corporation election
An officer of a corporation is generally an employee, so wages are available on the same basis. Money can also leave as a dividend: in the IRS’s words, “Any distribution to shareholders from earnings and profits is generally a dividend.” Unlike the other three routes, the entity is taxed in its own right, and amounts distributed as dividends are not deductible by it.
How much should you pay yourself?
People search for this constantly, so it is worth being clear about what can and cannot be said.
For a default-classified LLC there is no correct amount, because the amount you withdraw does not change your tax. You are taxed on the profit either way. What constrains a draw is not tax but solvency: whether the business can meet its obligations, whether there is money set aside for the instalments, and whatever the operating agreement says about distributions in a multi-member LLC.
For an LLC with an S election the question is different and has a legal answer rather than a preference: the salary must be reasonable compensation for the services actually performed, judged on the factors above. That is a facts question about your role, and it is not one an article can resolve.
Three things that get conflated with this
Paying yourself and having employees are separate questions
A single-member LLC is disregarded for income tax and still “considered a separate entity” for employment and certain excise taxes. So an owner who cannot put themselves on payroll may nonetheless be running payroll for staff, with all the registration and deposit obligations that carries. The two questions have nothing to do with each other and are constantly answered as if they were one.
The business account is not a formality
A draw is a transfer between two accounts, which only works cleanly if there are two accounts. Paying personal expenses directly from the business account makes the year-end position difficult to reconstruct and is one of the facts courts look at when someone argues the company and its owner were never really separate.
State tax is a separate layer
Everything above is federal. States tax business income on their own terms and several charge an LLC something regardless of profit — California’s annual franchise tax and New York’s filing fee are examples covered in our state guides. Whether your state adds anything is a question about where you and the business are, not about which route you use to take money out.
How to check any of this yourself
Every figure on this page comes from a source you can open. Tax figures change annually and this page carries the date we checked them, so here is how to re-check them rather than trusting the date.
- For the self-employment rate and the $400 threshold: the IRS self-employment tax page. Read the sentence, not the review date at the foot — that page currently states a 2024 wage base under a 2026 review date.
- For the current Social Security wage base: IRS Topic no. 751, which names the year in the sentence itself.
- For the instalment dates and the safe harbours: Form 1040-ES. The dates are on the payment voucher pages and the safe harbours are under “General Rule” on the first page. Read that section from its first word — the higher-income rule tests the prior year’s income and the current year’s filing status, and skimming inverts it.
- For the deduction: Schedule SE, line 13, which says “one-half”. If the Additional Medicare Tax applies to you, read 26 U.S.C. §164(f)(1) as well — the parenthetical carve-out is in the Code and not on the explainer pages.
- For reasonable compensation: the IRS page on S corporation compensation, which lists the factors.
- For anything that depends on your own numbers: an accountant. Everything above is a rule; none of it is an answer about you.
If something here does not match what you find, the source wins and we would like to know. That is the point of naming them.
Questions people actually ask
How do I pay myself from my LLC?
It depends on how your LLC is taxed, and for most LLCs a salary is not one of the options. A single-member LLC with no election pays its owner by owner’s draw — a transfer from the business account to a personal one, with no payroll and no withholding. A multi-member LLC pays distributions, and guaranteed payments where the operating agreement provides a fixed amount for services. An LLC that has elected S or C corporation treatment pays W-2 wages, and in the S corporation case that is required rather than optional.
Can I put myself on payroll as an LLC owner?
Not if your LLC has made no tax election. The IRS states that “Partners are not employees and shouldn’t be issued a Form W-2”, and a single-member LLC owner is taxed “in the same manner as a sole proprietorship”. Payroll becomes available only if the LLC elects to be taxed as an S or C corporation — and with an S election it becomes compulsory for a shareholder who works in the business, not merely permitted.
Does taking an owner’s draw reduce my taxes?
No. This is the single most expensive misunderstanding on the subject. You are taxed on the LLC’s profit, not on what you withdrew. Take $30,000 out of a business that made $50,000 and you are taxed on $50,000; take nothing out and you are still taxed on $50,000. (Illustrative figures.) A draw is not a deductible business expense, and leaving profit in the business account does not defer anything.
How much self-employment tax will I pay?
The rate is 15.3% — “12.4% for social security … and 2.9% for Medicare” — on net earnings from self-employment, and it is owed once those reach $400. The 12.4% part stops at the Social Security wage base, which is $184,500 for 2026 per IRS Topic no. 751; the 2.9% Medicare part has no cap. One-half of your self-employment tax is deductible against income tax, on Schedule SE line 13. What that comes to on your own figures is arithmetic for a qualified accountant, not something we can tell you.
When are quarterly estimated taxes due?
For the 2026 tax year: 15 April, 15 June, 15 September and 15 January. They are universally called quarterly — the IRS uses the word too — but the dates are not a quarter apart. The gaps are two, three, four and three months, so the second payment falls only two months after the first. Anyone who hears “quarterly” and waits for the end of June has missed 15 June by a fortnight, and the penalty accrues per instalment from the day it was due. The form also lets you skip the January instalment if you file the return by 1 February and pay the balance with it.
How much do I have to pay in estimated tax to avoid a penalty?
Form 1040-ES sets safe harbours: 90% of the tax to be shown on the current-year return, or 100% of the tax shown on the prior-year return where that return covered all 12 months. The prior-year percentage rises to 110% if prior-year adjusted gross income was over $150,000 — or $75,000 if the current year’s filing status is married filing separately. Note that the income tested is the prior year’s and the filing status tested is the current year’s. A separate exception removes the requirement entirely for someone who was a US citizen or resident alien all of the prior year and had no tax liability for it.
What happens if I do not pay estimated tax?
A penalty may apply, and it is charged per instalment rather than once at the end — Form 1040-ES describes it as “imposed on each underpayment for the number of days it remains unpaid”. So paying everything at filing time still leaves four instalments that were late. The penalty can be waived in some circumstances, and an annualised method exists for income that arrives unevenly. We are not publishing a rate because the form does not state one.
Should I elect S corporation status to save on self-employment tax?
That is the question we will not answer, and we would be suspicious of anyone who answers it without knowing your numbers. It turns on your profit, your other income, what a reasonable salary is for the work you actually do, your state’s treatment, and what running payroll costs you. What we can tell you is that an S election makes a salary mandatory rather than optional, that reasonable compensation is judged on facts rather than chosen, and that the IRS position from the Watson litigation is that “the intent to limit wages is not a controlling factor”. Take the four routes to a qualified accountant and have them run your own figures.
How do I pay myself from a multi-member LLC?
Through distributions of your share, and through guaranteed payments if the operating agreement provides a fixed amount for services irrespective of profit. The LLC files Form 1065 and issues you a K-1, and you are taxed on your distributive share whether or not cash reached you. Guaranteed payments carry no income tax withholding, which is why the instalment rules matter, and under 26 U.S.C. §1402(a)(13) guaranteed payments for services actually rendered remain within net earnings from self-employment.
Can I pay myself if I do not live in the United States?
The draw and distribution routes work the same way, but two things differ. The S corporation election is closed to you if you are not a US citizen or resident — 26 U.S.C. §1361(b)(1)(C) bars a nonresident alien shareholder. And Form 1040-ES states its rules for “U.S. citizens and resident aliens”, directing nonresident aliens to Form 1040-ES (NR) instead, so the instalment mechanics run on a different form. Whether US tax reaches you at all is a separate question that depends on where the work happens and on any treaty, and it belongs with a professional familiar with both countries.