Yes — if you own an LLC and work in it, you almost certainly owe self-employment tax on your share of the profits. The combined rate is 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare, and it applies to 92.35% of your net earnings from the business. The tax exists because LLC owners are not employees of their own company by default, so the IRS expects you to pay both the employer and employee halves of payroll tax yourself. Whether you owe it, and on how much, depends on how your LLC is taxed, what you do for the business, and where the income comes from.
If You Are the Only Owner
A single-member LLC is a “disregarded entity” to the IRS by default, meaning you and the business are the same taxpayer for federal purposes.1Internal Revenue Service. Limited Liability Company (LLC) You are not on your own payroll. You report the LLC’s income and expenses on Schedule C of your personal Form 1040, the same way any sole proprietor would.2Internal Revenue Service. Self-Employed Individuals Tax Center
The full net profit is subject to self-employment tax, even if you leave the money sitting in the business account. The tax follows earnings from the trade or business, not the cash you withdraw. Once net earnings hit $400 for the year, you file Schedule SE and pay.3Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
If Your LLC Has More Than One Owner
Multi-member LLCs are treated as partnerships by default. The LLC itself pays no income tax; it files Form 1065 as an information return and issues each member a Schedule K-1 with their portion of the year’s ordinary business income.4Internal Revenue Service. About Form 1065, U.S. Return of Partnership Income You owe self-employment tax on the K-1 amount whether or not the LLC actually paid cash out to you that year.5Internal Revenue Service. 2025 Instructions for Form 1065
Guaranteed Payments
If the LLC pays you a fixed amount for your services regardless of profit, that guaranteed payment is also subject to self-employment tax.6Internal Revenue Service. Entities 1 That applies even if you might otherwise argue you are a limited partner.
The Limited-Partner Exclusion Is Narrow
Federal law excludes a limited partner’s share of partnership income from self-employment tax, except for guaranteed payments received for services.7Office of the Law Revision Counsel. 26 USC 1402 Definitions For LLC members, the exclusion is hard to reach. Courts have held that members who actively work in the business, direct operations, sign contracts, or provide professional services do not qualify as limited partners for this purpose.8Internal Revenue Service. Self-Employment Tax and Partners In practice, only truly passive investors in a multi-member LLC who perform no services tend to benefit.
Electing S Corporation Status to Cut the Tax
An LLC can file Form 2553 to be taxed as an S corporation.9Internal Revenue Service. S Corporations That changes your relationship with the business: you become both a shareholder and an employee. The LLC has to run payroll and pay you a salary for the work you do, and that salary carries the usual Social Security and Medicare withholding on both halves.
Profits left after your salary are distributed to you as a shareholder, and those distributions are not subject to self-employment tax. That is the main tax draw of the election. For an LLC earning well above what a reasonable salary would be, the savings can add up.
Reasonable Compensation Rules Set the Ceiling
The IRS scrutinizes S corporation salaries. If yours is unreasonably low, the agency can reclassify distributions as wages and assess back employment taxes.10Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues What counts as reasonable turns on your training and experience, hours and duties, what similar businesses pay for the same role, the company’s history of paying low salaries alongside large distributions, and what you pay other employees for comparable work. The election also brings payroll filings and recordkeeping costs that can eat into the savings for smaller operations.
Electing C Corporation Status
An LLC can also elect C corporation treatment by filing Form 8832.11Internal Revenue Service. LLC Filing as a Corporation or Partnership The LLC files its own Form 1120, and profits do not flow through to owners. If you work in the business, you are a W-2 employee, and there is no self-employment tax on any dividends you receive. The tradeoff is double taxation: the corporation pays tax on profits and shareholders pay tax again on dividends. For most small LLC owners the S corporation route is a better fit, but a C corporation can make sense when the business plans to reinvest most of what it earns.
LLC Income That Is Not Subject to Self-Employment Tax
Not every dollar running through an LLC counts as self-employment earnings.
- Rental income from real property, including rent paid in crop shares, is generally excluded, along with the related deductions.
- Dividends on stock and interest on bonds or other debt held by the LLC are excluded, unless the LLC is a dealer in securities.
- Capital gains and losses from selling investment assets do not count.
The rental exclusion has boundaries. If the LLC provides substantial services to tenants beyond what a typical landlord offers, such as daily maid service, meals, or concierge-level management, the income may lose its rental character. And if the LLC operates as a real estate dealer, buying and selling properties as its business, rental income from those properties is subject to self-employment tax. Being classified as a “real estate professional” for passive-activity purposes does not, by itself, pull rental income into self-employment tax.
How the Tax Is Calculated
You owe self-employment tax when net earnings from self-employment hit $400 for the year.3Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) Above that, the math runs in three steps.
First, multiply net profit by 92.35%. That adjustment mirrors the break traditional employees get, since they do not pay payroll tax on the employer’s share of their FICA.12Internal Revenue Service. Topic No. 554, Self-Employment Tax On $100,000 of net profit, your taxable self-employment earnings are $92,350.
Second, apply 15.3%. That splits into 12.4% for Social Security and 2.9% for Medicare. On $92,350, the tax comes to roughly $14,130.
Third, watch the Social Security cap. The 12.4% Social Security piece only applies to earnings up to $184,500 in 2026.13Social Security Administration. Contribution and Benefit Base Once your combined wages and self-employment income cross that ceiling, the Social Security portion stops. The 2.9% Medicare portion has no cap.
The Additional 0.9% Medicare Surtax
High earners owe an extra 0.9% Medicare surtax on self-employment income above certain thresholds:14Internal Revenue Service. Questions and Answers for the Additional Medicare Tax
- Single or head of household: $200,000
- Married filing jointly: $250,000
- Married filing separately: $125,000
The surtax is reported on Form 8959, and total self-employment tax is calculated on Schedule SE, filed with Form 1040.15Internal Revenue Service. About Schedule SE (Form 1040), Self-Employment Tax
Deductions That Reduce What You Pay
You can deduct half of your self-employment tax when figuring adjusted gross income. It is the IRS’s way of matching what employees get when their employers cover half of their payroll taxes. The deduction is calculated on Schedule SE and reported on Schedule 1 of Form 1040.12Internal Revenue Service. Topic No. 554, Self-Employment Tax It lowers income tax, not the self-employment tax itself.
If you pay health insurance premiums for yourself, your spouse, or your dependents, you may deduct 100% of the cost as an adjustment to income, provided the plan is established under your business and you had a net profit for the year. You cannot claim it for any month you were eligible to join a plan through your spouse’s employer. The deduction goes on Form 7206 and flows to Schedule 1.16Internal Revenue Service. Instructions for Form 7206
Paying Quarterly
No one withholds taxes from your LLC income for you, so you pay income tax and self-employment tax throughout the year using Form 1040-ES. The 2026 deadlines are:17Internal Revenue Service. Form 1040-ES
- First quarter: April 15, 2026
- Second quarter: June 15, 2026
- Third quarter: September 15, 2026
- Fourth quarter: January 15, 2027
You can skip the January 15 payment if you file your 2026 return by February 1, 2027, and pay the full balance with it.
To dodge an underpayment penalty, total payments and withholding for the year generally must equal at least the smaller of 90% of the current year’s tax or 100% of last year’s tax. If your prior-year adjusted gross income exceeded $150,000 ($75,000 if married filing separately), the safe harbor rises to 110% of last year’s tax.18Internal Revenue Service. Estimated Tax Falling short triggers a penalty calculated on each shortfall for the days it stayed unpaid, at an interest rate the IRS resets quarterly. That rate is 7% per year as of the first quarter of 2026.19Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026