If you own an LLC, you almost certainly owe self-employment tax on your share of the profits. The IRS treats a standard LLC as a pass-through, so the business itself pays no federal income tax and the profits land on your personal return, where they trigger a combined 15.3% self-employment tax on net earnings up to the 2026 Social Security cap of $184,500, with the 2.9% Medicare portion continuing on everything above that.1Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet You’re paying both halves of Social Security and Medicare because no employer is splitting the bill with you.
How the IRS Classifies Your LLC
The IRS has no separate “LLC” tax category. A single-member LLC is a “disregarded entity” — the IRS looks straight through to the owner and treats the business as a sole proprietorship for tax purposes.2Internal Revenue Service. Limited Liability Company (LLC) A multi-member LLC defaults to partnership treatment.3eCFR. 26 CFR 301.7701-3 – Classification of Certain Business Entities
Either way, the LLC itself pays no federal income tax. Single-member owners report profits on Schedule C with their Form 1040. Multi-member LLCs file Form 1065, and each member gets a Schedule K-1 showing their share of income.4Internal Revenue Service. Partners Instructions for Schedule K-1 (Form 1065) One point that trips up new owners: you owe tax on your full share of the profits whether the money was distributed to you or left sitting in the business account.5Internal Revenue Service. Single Member Limited Liability Companies
The 2026 Rate and How to Calculate What You Owe
The 15.3% self-employment tax splits into two parts.6Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) The Social Security portion is 12.4% on net earnings up to $184,500 for 2026; earnings above that cap escape this piece.1Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet The Medicare portion is 2.9%, with no ceiling.7Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax The Social Security wage base was $176,100 in 2025 and rises to $184,500 in 2026.8Social Security Administration. Contribution and Benefit Base
You don’t apply 15.3% to your entire net profit. The IRS first reduces net earnings to 92.35% of the total, mirroring the deduction traditional employers get for their half of payroll taxes.9Internal Revenue Service. Topic No. 554, Self-Employment Tax Here’s the math on $100,000 of net profit:
- Multiply $100,000 by 92.35% to get $92,350 in taxable self-employment earnings.
- Apply 12.4% for Social Security: $11,451.40.
- Apply 2.9% for Medicare: $2,678.15.
- Total self-employment tax: $14,129.55.
Single-member owners pull net profit from Schedule C, line 31. Multi-member owners use Box 14, Code A on their Schedule K-1.10Internal Revenue Service. 2025 Instructions for Schedule SE (Form 1040) The tax is reported on Schedule SE, filed with your Form 1040. If your net self-employment earnings come in under $400, you owe no self-employment tax and don’t need Schedule SE.11Office of the Law Revision Counsel. 26 USC 6017 – Self-Employment Tax Returns
Additional Medicare Tax for High Earners
An extra 0.9% Medicare surtax applies to self-employment income above $200,000 for single filers and heads of household, $250,000 for joint filers, or $125,000 for married filing separately.12Internal Revenue Service. Questions and Answers for the Additional Medicare Tax These thresholds aren’t inflation-adjusted, so more owners cross them each year. A single filer with $260,000 in net self-employment earnings pays the standard 2.9% on the full amount plus 0.9% on the $60,000 above $200,000.
When LLC Income Escapes Self-Employment Tax
Two situations produce LLC income that avoids self-employment tax. Both come with limits worth understanding before you rely on them.
Limited Partners in Multi-Member LLCs
A member who qualifies as a limited partner in an LLC taxed as a partnership generally doesn’t owe self-employment tax on their share of partnership income. Self-employment tax applies only to guaranteed payments received for services personally performed for the business.13Internal Revenue Service. Entities 1 This can matter when some members are passive investors while others actively run the business.
The IRS scrutinizes members who claim limited-partner status while participating in management. If you’re making day-to-day decisions for the business, treating yourself as a limited partner on your return invites problems.
Rental Real Estate Income
Rental income earned through an LLC and reported on Schedule E is generally not subject to self-employment tax. The line turns on the services you provide. Ordinary landlord duties like maintenance, trash collection, and common-area cleaning keep the income on Schedule E and out of self-employment tax territory. Hotel-style services such as daily maid service or meals push the activity onto Schedule C, where self-employment tax applies.14Internal Revenue Service. Publication 527, Residential Rental Property
Deductions That Cut the Bill
Half of Self-Employment Tax
You can deduct 50% of your self-employment tax when calculating adjusted gross income. It’s an above-the-line deduction, so you claim it whether or not you itemize. On the $14,129.55 example above, that’s roughly $7,065 shaved off your taxable income.9Internal Revenue Service. Topic No. 554, Self-Employment Tax The deduction reduces the income tax you owe on top of self-employment tax; it does not reduce the self-employment tax itself. You figure it directly on Schedule SE.
Qualified Business Income Deduction
Section 199A allows a deduction of up to 20% of qualified business income for many LLC owners.15Office of the Law Revision Counsel. 26 USC 199A – Qualified Business Income This one applies to income tax, not self-employment tax, but it can substantially lower your overall federal bill.
Service-based businesses face a catch. LLCs in fields like law, medicine, accounting, consulting, and financial services see the deduction phase out once taxable income crosses roughly $201,750 for single filers or $403,500 for joint filers in 2026, with a full phase-out $75,000 or $150,000 above those points. Non-service businesses face different limits tied to W-2 wages paid and property owned, but aren’t disqualified by income alone.
Electing S Corporation Status
LLC owners with consistently strong profits have a structural option: electing S corporation tax treatment. This doesn’t change your LLC’s legal form; it changes how the IRS taxes it. You file Form 2553, and the election must be made no later than two months and 15 days after the beginning of the tax year you want it to take effect (or during the preceding tax year).16Internal Revenue Service. Instructions for Form 2553
Under S corp treatment, you become an employee of your own business. The LLC pays you a salary through payroll, and self-employment tax applies only to those wages. Remaining profit passes through to you as a shareholder distribution, which is subject to income tax but not the 15.3% self-employment tax.17Office of the Law Revision Counsel. 26 USC 1366 – Pass-Thru of Items to Shareholders For an LLC earning $200,000 where the owner takes a $90,000 salary, self-employment tax hits only the $90,000; the $110,000 in distributions is taxed as income but avoids the 15.3%.
The savings carry real strings. Your salary must be “reasonable” — meaning it reflects what someone with your skills and responsibilities would earn on the open market. The IRS watches for owners paying themselves suspiciously low salaries to maximize untaxed distributions, and it can reclassify distributions as wages, then assess back taxes and penalties. You’ll also pick up payroll administration costs: running payroll, filing quarterly payroll returns, and issuing W-2s. For LLCs earning under roughly $50,000 to $60,000, the overhead typically eats the tax savings.
Filing and Paying Quarterly
You report the annual self-employment tax on Schedule SE with your Form 1040.18Internal Revenue Service. 2025 Schedule SE (Form 1040) The IRS doesn’t want to wait until April, though. If you expect to owe $1,000 or more in total tax for the year after withholding and refundable credits, you need to make quarterly estimated payments.19Internal Revenue Service. Form 1040-ES (2026)
The 2026 quarterly due dates:
- First quarter: April 15, 2026
- Second quarter: June 15, 2026
- Third quarter: September 15, 2026
- Fourth quarter: January 15, 2027
Missing a deadline triggers an underpayment penalty calculated at the IRS underpayment rate — 7% annually in early 2026, compounded daily — on the shortfall for each day it goes unpaid.20Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 202621Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax No penalty applies if your total tax for the year comes in under $1,000.
Most LLC owners pay through IRS Direct Pay, which draws from a bank account at no cost, or through an IRS Online Account that tracks payment history in one place.22Internal Revenue Service. Estimated Taxes Credit cards, debit cards, the IRS2Go mobile app, and mailed checks with a 1040-ES voucher all work too. Keeping a separate business bank account makes estimating each quarter’s payment much easier than reconstructing profits from mixed transactions in April.