A Professional Limited Liability Company is taxed exactly the way a standard LLC is taxed at the federal level, so how a PLLC is taxed depends entirely on which of four IRS classifications applies: disregarded entity, partnership, S corporation, or C corporation. The first two are automatic defaults based on the number of owners. The other two require an affirmative election. Your choice determines whether your professional income carries self-employment tax, payroll tax, corporate-level tax, or some combination, and for a profitable practice the gap between options can run into tens of thousands of dollars a year.
State Entity, Federal Tax: Two Different Questions
The PLLC is a creature of state law. It exists so licensed professionals like physicians, attorneys, accountants, and architects can operate through a liability-shielding entity while staying under their state licensing board’s oversight. Federal tax law ignores the professional label. The IRS applies its entity classification rules to a PLLC the same way it would to any LLC, and the firm itself is not a separate federal tax category.
Default Treatment If You File No Election
If you form a PLLC and never file a classification election, the IRS assigns a default based on ownership. The firm pays no federal income tax either way. All income and losses flow through to the owners, and each owner owes self-employment tax on their share of net earnings.
Single-Member PLLC
A one-owner PLLC is a disregarded entity. The IRS treats the business as if it doesn’t exist as a separate taxpayer, and you report income and expenses on Schedule C of your personal Form 1040, the same schedule a sole proprietor would use.1Internal Revenue Service. About Schedule C (Form 1040) The net profit is subject to both ordinary income tax at your marginal rate and self-employment tax.
Multi-Member PLLC
A PLLC with two or more owners defaults to partnership treatment. The firm files Form 1065 as an information return and issues each member a Schedule K-1 showing their share of income, deductions, and credits.2Internal Revenue Service. About Form 1065, U.S. Return of Partnership Income Each member then reports those figures on their personal return. The partnership itself owes no federal income tax, but each member owes self-employment tax on guaranteed payments and their distributive share of ordinary business income.
Self-Employment Tax on Pass-Through Income
Self-employment tax is the pass-through owner’s version of FICA. The combined rate is 15.3%: 12.4% for Social Security and 2.9% for Medicare.3Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) As the owner, you pay both the employee and employer halves. The Social Security portion applies only to net earnings up to $184,500 in 2026.4Social Security Administration. Contribution and Benefit Base Earnings above that ceiling still owe the 2.9% Medicare tax, and an additional 0.9% Medicare surtax kicks in once total earnings exceed $200,000 for single filers or $250,000 for married couples filing jointly. You can deduct the employer-equivalent half as an adjustment to income on your personal return, which softens the hit without eliminating it. This ongoing self-employment tax burden is the main reason profitable PLLCs look at the S corporation election.
Electing S Corporation Status
The S corporation election is the most common tax move for profitable professional firms. The logic is simple: it splits your income into a salary component that carries payroll tax and a distribution component that does not. You make the election by filing Form 2553.5Internal Revenue Service. About Form 2553, Election by a Small Business Corporation The PLLC stays a pass-through for income tax purposes, but payroll taxes are now calculated differently.
The Salary and Distribution Split
Every owner who actively works in the practice must receive a reasonable salary reported on a W-2.6Internal Revenue Service. About Form W-2, Wage and Tax Statement That salary carries the standard FICA taxes: 6.2% for Social Security and 1.45% for Medicare from each side. Any profit left after salaries can be distributed to the owners as non-wage income, and those distributions are not subject to the 15.3% self-employment tax.
For a solo attorney netting $400,000 a year, the difference is real. Under default pass-through treatment, self-employment tax applies to the full $400,000 (minus the Social Security cap). With an S corporation election and a reasonable salary of, say, $200,000, FICA applies only to the salary and the remaining $200,000 in distributions escapes the 15.3% self-employment levy. That single change saves roughly $23,000 in a year, though the exact figure depends on where the salary falls against the Social Security wage base.
What Counts as Reasonable Compensation
The IRS does not publish a formula. Courts have weighed the professional’s training and experience, time and effort devoted to the practice, what comparable professionals earn in similar roles, the firm’s dividend history, and compensation paid to non-owner employees.7Internal Revenue Service. Fact Sheet 2008-25, S Corporation Compensation and Medical Insurance Issues Setting salary too low to inflate distributions is the fastest route to IRS scrutiny. The agency has specifically warned that S corporations should not try to disguise wages as distributions, personal expense reimbursements, or loans. The working rule among practitioners is that the salary should match what you would realistically pay someone else to do the same work.
Deadlines and Filings
An S corporation PLLC files Form 1120-S annually, with each owner’s share reported on Schedule K-1.8Internal Revenue Service. About Form 1120-S, U.S. Income Tax Return for an S Corporation To make the election effective for the current tax year, Form 2553 must be filed no later than two months and 15 days after the tax year begins, or at any time during the preceding tax year.9Office of the Law Revision Counsel. 26 U.S. Code 1362 – Election; Revocation; Termination For a calendar-year PLLC, the deadline is March 15. Miss it, and the election takes effect the following year unless you qualify for late-election relief. Revenue Procedure 2013-30 provides a simplified late-filing process when the delay was due to reasonable cause.10Internal Revenue Service. Revenue Procedure 2013-30
Eligibility Limits
The S election carries structural restrictions. Your PLLC can have no more than 100 shareholders, all of whom must be U.S. citizens or resident individuals (or certain trusts and estates). Partnerships and corporations cannot be shareholders. The firm can issue only one class of stock, so you cannot build tiered ownership with different economic rights.11Internal Revenue Service. S Corporations For a two-person law firm, none of this matters. For a large multi-specialty medical group with complex profit-sharing, the one-class-of-stock rule can be a genuine obstacle.
Electing C Corporation Status
A PLLC can elect C corporation treatment by filing Form 8832.12Internal Revenue Service. About Form 8832, Entity Classification Election This is the least common election for professional firms, because it adds a second layer of tax that pass-through structures avoid.
Double Taxation
A C corporation pays its own federal income tax on net profits at a flat 21% rate, filing Form 1120.13Internal Revenue Service. About Form 1120, U.S. Corporation Income Tax Return When after-tax profits are distributed as dividends, the owners pay tax again at their individual rates. Qualified dividends are taxed at 0%, 15%, or 20% depending on the owner’s total taxable income, but the combined effective rate on a dollar that passes through both layers is still substantially higher than pass-through taxation for most professional firms.
High earners face an added 3.8% Net Investment Income Tax on dividends once modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.14Internal Revenue Service. Net Investment Income Tax After the corporate rate, individual dividend rate, and surtax, the combined federal tax on distributed earnings can approach 40%.
Personal Service Corporation Treatment
A PLLC that elects C status typically qualifies as a “qualified personal service corporation” because its activities center on fields like health, law, accounting, architecture, or consulting and its stock is held by the professionals performing the work.15Office of the Law Revision Counsel. 26 U.S. Code 448 – Limitation on Use of Cash Method of Accounting One practical upside is that personal service corporations are exempt from the general prohibition on the cash method of accounting. The IRS also looks closely at salary and expense arrangements designed to zero out corporate income and dodge the entity-level tax.
When C Status Can Make Sense
The C corporation offers fully deductible fringe benefits that other structures don’t. Health insurance premiums and group term life insurance for all employees, including owner-employees, are deductible at the corporate level and excluded from the employee’s taxable income. A firm with heavy benefit costs or plans to retain significant earnings for growth rather than distributing them annually can sometimes come out ahead despite the double-tax exposure. C status also permits multiple classes of stock and has no limit on the number or type of shareholders, giving it more flexibility than the S election for firms expecting outside investors.
The Qualified Business Income Deduction
If your PLLC is taxed as a pass-through (disregarded entity, partnership, or S corporation), you may qualify for a 20% deduction on your share of qualified business income under Section 199A.16Office of the Law Revision Counsel. 26 U.S. Code 199A – Qualified Business Income The deduction was made permanent by the One Big Beautiful Bill Act in 2025, removing the original sunset.
The catch is that most PLLC professions fall into the “specified service trade or business” category, which includes health, law, accounting, consulting, financial services, and performing arts. For these fields, the deduction phases out once taxable income exceeds set thresholds. For married couples filing jointly in 2026, the phase-out runs from $394,600 to $544,600 of taxable income. For single filers, it runs from $197,300 to $272,300.17Internal Revenue Service. Instructions for Form 8995 Below the lower threshold, the full 20% deduction is available regardless of profession. In the phase-out range, you get a partial deduction. Above the upper threshold, the deduction disappears for specified service businesses. C corporations are not eligible for this deduction at all, which is another reason most PLLCs stay with pass-through taxation.
Quarterly Estimated Taxes for PLLC Owners
Pass-through income has no automatic withholding, so PLLC owners must make quarterly estimated payments to avoid underpayment penalties. The IRS deadlines are April 15, June 15, September 15, and January 15 of the following year.18Internal Revenue Service. Estimated Tax – Individuals
You can avoid the penalty by paying at least 100% of your prior-year tax liability through estimated payments and withholding. If your adjusted gross income exceeded $150,000 in the prior year ($75,000 if married filing separately), the safe harbor rises to 110% of last year’s tax. The alternative is paying at least 90% of your current-year liability, but that requires projecting income accurately, which is harder for practices with uneven revenue. S corporation owners carry a lighter quarterly burden because part of their income already comes through a W-2 salary with standard withholding. Owners under default pass-through treatment cover the full quarterly obligation themselves.
State and Local Taxes Your Federal Election Doesn’t Touch
Most states follow the federal pass-through or corporate election for income tax purposes, so your state return generally tracks your federal filing. Several states layer on additional taxes that apply regardless of federal classification. Many impose an annual franchise tax or registration fee on LLCs and PLLCs for the privilege of existing in the state, ranging from under $50 to several hundred dollars, with some states charging substantially more. A handful impose a gross receipts or margins tax on business revenue rather than net income, which can produce a meaningful state tax bill even in a thin-margin year because the tax is calculated before most deductions.
Local jurisdictions often add their own business license fees or professional privilege taxes for licensed practitioners. A PLLC working across multiple cities or counties has to track each local requirement separately, since these obligations vary widely and are not swept up by your federal or state filing.