How Much Does an LLC Pay in Taxes? Rates, Deductions, and Elections

An LLC usually pays no federal income tax of its own. Profits pass through to the owners and get taxed on their personal returns at ordinary rates between 10% and 37%, and owners who work in the business also owe 15.3% self-employment tax on their share of the profit. How much an LLC pays in taxes overall depends on three things: how the IRS classifies the business, whether the owners elect to be taxed as a corporation, and the state where the LLC operates.

What Determines the Bill

The IRS has no separate tax category for LLCs. It assigns a default based on the number of owners, and the LLC can change that default by filing a form.

  • A one-owner LLC is a “disregarded entity.” Business income and expenses go on Schedule C of the owner’s Form 1040, and the LLC files no separate federal return.1Internal Revenue Service. Single Member Limited Liability Companies
  • A two-or-more-owner LLC defaults to a partnership. It files an informational Form 1065 and issues each member a Schedule K-1. The LLC still pays no federal income tax; each member pays on their share.1Internal Revenue Service. Single Member Limited Liability Companies
  • An LLC can file Form 8832 to be taxed as a C-corporation. The business then pays a flat 21% federal tax on its profits, and owners pay tax again on any dividends.2Office of the Law Revision Counsel. 26 U.S. Code 11 – Tax Imposed
  • An LLC can file Form 2553 to be taxed as an S-corporation. Profits still pass through, but splitting income between salary and distributions can lower self-employment tax.

Classification drives everything else in this article. Pick the wrong one and you either overpay or take on paperwork you don’t need.

Federal Income Tax Rates on LLC Profits

If your LLC uses the default pass-through treatment, your share of the profit is added to your other income and taxed at individual rates. For 2026 those brackets are:

  • 10% on taxable income up to $12,400 single or $24,800 joint
  • 12% from $12,401 to $50,400 single, $24,801 to $100,800 joint
  • 22% from $50,401 to $105,700 single, $100,801 to $211,400 joint
  • 24% from $105,701 to $201,775 single, $211,401 to $403,550 joint
  • 32% from $201,776 to $256,225 single, $403,551 to $512,450 joint
  • 35% from $256,226 to $640,600 single, $512,451 to $768,700 joint
  • 37% above $640,600 single, $768,700 joint

The brackets are marginal. Each rate applies only to the income inside that band, not to your whole income.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026

An LLC that elected C-corporation treatment pays a flat 21% on net income before any money reaches the owners.2Office of the Law Revision Counsel. 26 U.S. Code 11 – Tax Imposed Profits taken as dividends are then taxed on the owner’s personal return, usually at the qualified-dividend rate of 0%, 15%, or 20%.

Self-Employment Tax

LLC members who work in the business owe self-employment tax on their share of net profit. It totals 15.3% and funds Social Security and Medicare:4Office of the Law Revision Counsel. 26 USC Ch. 2 – Tax on Self-Employment Income

If your self-employment income tops $200,000 single or $250,000 joint, an extra 0.9% Additional Medicare Tax kicks in on the amount above that line, raising the effective Medicare rate to 3.8%.6Internal Revenue Service. Topic No. 560, Additional Medicare Tax

You can deduct half of your self-employment tax when figuring adjusted gross income, which lowers your regular income tax. The deduction does not shrink the self-employment tax itself. Claim it on Schedule 1 of Form 1040.7Internal Revenue Service. Topic No. 554, Self-Employment Tax

The 20% Qualified Business Income Deduction

Pass-through LLC owners may qualify for a deduction of up to 20% of qualified business income under Section 199A.8Office of the Law Revision Counsel. 26 U.S. Code 199A – Qualified Business Income Legislation signed in 2025 made the deduction permanent. Sole proprietors, partnerships, and S-corporations qualify; C-corporations do not.

For 2026, the income thresholds are approximately $200,000 single and $400,000 joint.3Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Below those numbers, most owners take the full 20% without further restriction.

Above the thresholds, two limits phase in. The deduction can be capped by the W-2 wages your business pays or the value of its depreciable property. And if your LLC is in a “specified service” field — health care, law, accounting, consulting, financial services, or athletics — the deduction phases out completely over a range of about $75,000 single or $150,000 joint above the threshold, after which service-business owners get nothing.9Internal Revenue Service. Instructions for Form 8995

The practical effect is real money. An eligible owner with $100,000 of qualified business income deducts $20,000, which at a 22% marginal rate saves about $4,400.

When an S-Corp Election Lowers What You Pay

The S-corporation election is the most common tax-planning move for profitable LLCs, and self-employment tax is the reason.

Under the default treatment, your entire share of net profit is subject to the 15.3% self-employment tax. Under an S-corp election, you split what you take out of the business into a reasonable salary and shareholder distributions. Only the salary carries the 12.4% Social Security and 2.9% Medicare taxes; the distributions do not.10Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers

The catch is the word “reasonable.” The IRS and the courts weigh your training, duties, hours, and what similar businesses pay for comparable work.11Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues Paying yourself a token wage to inflate distributions is a well-known audit flag, and courts have consistently required reasonable wages for shareholders providing more than minor services.10Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers

An S-corp election also brings costs. You run payroll, file quarterly payroll returns, and file a separate corporate return on Form 1120-S. For LLCs earning under roughly $40,000 to $50,000 in annual profit, those costs usually eat any self-employment tax savings.

Quarterly Estimated Payments

LLC income isn’t withheld by an employer, so you pay the IRS in installments throughout the year. The 2026 due dates are:12Internal Revenue Service. Form 1040-ES, Estimated Tax for Individuals

  • Q1: April 15, 2026
  • Q2: June 15, 2026
  • Q3: September 15, 2026
  • Q4: January 15, 2027 (not required if you file the 2026 return and pay in full by February 1, 2027)

The IRS won’t charge an underpayment penalty if you owe less than $1,000 at filing, or if your payments cover at least 90% of the current year’s tax or 100% of last year’s tax, whichever is smaller. That prior-year figure rises to 110% if your prior-year adjusted gross income was over $150,000 (or $75,000 if married filing separately).13Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty

Payroll Taxes if You Have Employees

Hiring employees adds a separate set of taxes the LLC owes as employer, on top of what you pay on your own share of profit.

Under FICA, the LLC pays 6.2% for Social Security and 1.45% for Medicare on each employee’s wages out of business funds, and withholds a matching amount from the employee’s paycheck.14Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates

Federal unemployment tax (FUTA) runs 6.0% on the first $7,000 of each employee’s annual wages, but employers who pay their state unemployment tax on time get a credit of up to 5.4%. The effective federal rate for most employers is 0.6%, or $42 per employee per year.15Internal Revenue Service. Topic No. 759, Form 940 – Employers Annual Federal Unemployment (FUTA) Tax Return State unemployment rates vary with your industry and claims history.16Department of Labor. Unemployment Insurance Tax Fact Sheet

State and Local Taxes Add to the Total

Federal isn’t the whole bill. Most states with an income tax reach pass-through LLC profits through the owners’ state returns, at rates from about 1% to over 13%. A few states have no personal income tax at all.

Many states also charge an annual franchise tax or LLC registration fee that applies whether the business earned anything or not. Some are flat; others scale with revenue or number of members. A few jurisdictions add a gross receipts tax based on total sales rather than net profit. Local governments may layer on business license fees or occupation taxes tied to where you operate.

Falling behind on state or local obligations can cost you good standing or trigger administrative dissolution, which wipes out the liability protection the LLC was formed to give you in the first place.