Do I pay self-employment tax on LLC income?

Okay, let's break down self-employment tax and LLC income. It's a common question!

**Generally, yes, you *will* likely pay self-employment tax on LLC income, but it depends on how your LLC is taxed.** Here's the breakdown:

* **LLC as a Disregarded Entity:** This is the default for single-member LLCs (one owner). The IRS treats it like you’re a sole proprietor. **All** profit is subject to both income tax *and* self-employment tax (Social Security & Medicare – currently 15.3% on the first ~$168,600 of earnings in 2024).

* *Example:* You earn $50,000 profit from your single-member LLC. You pay income tax on the $50,000, *and* roughly $7,650 in self-employment tax (approx. 15.3% of $50,000).

* **LLC Taxed as a Partnership:** For multi-member LLCs (more than one owner), the default is partnership taxation. Each partner pays self-employment tax on their share of the LLC's profit.

* *Example:* An LLC with two partners splits profits 50/50. The LLC earns $100,000 profit. Each partner reports $50,000 on their Schedule K-1 and pays self-employment tax on that $50,000.

* **LLC Taxed as an S-Corporation:** *This is where things change.* If your LLC elects to be taxed as an S-Corp, you become an employee of your own company. You pay yourself a "reasonable salary" subject to payroll taxes (income tax, Social Security, Medicare withheld). **Only the *profit* distributions beyond your salary are *not* subject to self-employment tax.** This is often the biggest tax savings reason to elect S-Corp status.

* *Example:* Your S-Corp earns $100,000. You pay yourself a reasonable salary of $60,000 (subject to payroll taxes). The remaining $40,000 is a distribution *not* subject to self-employment tax.

* **Important Considerations:**

* **"Reasonable Salary"**: The IRS scrutinizes S-Corp owner salaries. It must be comparable to what someone else would be paid for similar work.

* **Form 1040-ES**: As a self-employed individual (even through an LLC), you need to make estimated tax payments quarterly using Form 1040-ES.

⚠️ Disclaimer: This is for educational purposes only. Always consult a licensed CPA for personalized advice.