How you pay yourself as an LLC owner depends on how the IRS classifies your business. If your LLC is taxed as a sole proprietorship or partnership (the default), you pay yourself with an owner’s draw: a transfer from the business account to your personal account, with no taxes withheld. If your LLC has elected to be taxed as a corporation, you become an employee and must take a salary through payroll, with taxes withheld each pay period. S-corp owners can also take distributions on top of that salary, which is why many LLCs elect S-corp status in the first place.
Get the classification right before you move any money. A single-member LLC defaults to a “disregarded entity,” and its income flows to your personal Form 1040 Schedule C.1Internal Revenue Service. Single Member Limited Liability Companies An LLC with two or more members defaults to a partnership and files Form 1065.2Internal Revenue Service. LLC Filing as a Corporation or Partnership An LLC that has elected corporate treatment files Form 1120 (C corp) or Form 1120-S (S corp).
Paying Yourself With an Owner’s Draw
If your LLC is taxed as a sole proprietorship or partnership, you pay yourself by moving money from the business bank account to your personal account. That transfer is an owner’s draw. It is not a business expense. In your books, it reduces your equity balance rather than showing up on the profit-and-loss statement.
No taxes come out at the time of a draw. You owe self-employment tax and income tax on the LLC’s full net profit for the year, whether you took that profit out or left it in the business. Earn $90,000 in net profit and draw only $50,000, and you still owe taxes on the full $90,000.3Internal Revenue Service. Topic No. 554, Self-Employment Tax
The combined self-employment tax rate is 15.3 percent: 12.4 percent for Social Security and 2.9 percent for Medicare, calculated on 92.35 percent of your net self-employment income.3Internal Revenue Service. Topic No. 554, Self-Employment Tax The Social Security portion applies only to earnings up to $184,500 in 2026.4Social Security Administration. Contribution and Benefit Base The Medicare portion has no cap, and an extra 0.9 percent applies to earnings above $200,000 (single) or $250,000 (married filing jointly). You can deduct the employer-equivalent half of your self-employment tax when calculating adjusted gross income; that deduction reduces income tax but not the self-employment tax itself.5Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
Practical habits keep the records clean. Schedule draws at regular intervals, biweekly or monthly, and log each one in your accounting software. Track your initial capital contributions separately so you always know your equity balance. Consistent documentation is part of what shows you are treating the LLC as a separate entity, which matters for the liability shield discussed below.
Paying Yourself a Salary Through Payroll
If your LLC has elected to be taxed as an S corp or C corp, and you work in the business, you are an employee and must run wages through a formal payroll system. Set up the payroll infrastructure first. Get an Employer Identification Number from the IRS at no cost.6Internal Revenue Service. Get an Employer Identification Number Register with your state for income tax withholding and unemployment insurance.7U.S. Small Business Administration. Get Federal and State Tax ID Numbers
Each pay period, the LLC withholds three federal taxes from your gross pay:
- Social Security at 6.2 percent of wages up to $184,500 (2026), with the LLC matching another 6.2 percent.8Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
- Medicare at 1.45 percent of all wages, with a matching 1.45 percent from the LLC.
- Federal income tax based on the Form W-4 you file.
The LLC also owes Federal Unemployment Tax (FUTA) at 6.0 percent on the first $7,000 of your annual wages. If state unemployment taxes are current, a credit of up to 5.4 percent typically applies, dropping the effective FUTA rate to 0.6 percent.9Internal Revenue Service. Topic No. 759, Form 940 – Employer’s Annual Federal Unemployment (FUTA) Tax Return State unemployment rates and wage bases vary widely.
Every quarter, the LLC files Form 941 to report wages and withholdings.10Internal Revenue Service. About Form 941, Employer’s Quarterly Federal Tax Return Form 941 is due April 30, July 31, October 31, and January 31.11Internal Revenue Service. Instructions for Form 941 At year-end, the business issues you a Form W-2 reporting total wages and withholdings.12Internal Revenue Service. Depositing and Reporting Employment Taxes Payroll software handles the calculations and electronic filings.
The S-Corp Salary-Plus-Distributions Strategy
Many LLC owners elect S-corp status to cut their self-employment tax bill. The reason: only the salary portion of an S-corp owner’s pay is subject to Social Security and Medicare taxes. Profits distributed to you as a shareholder, after you have taken a reasonable salary, are taxed as ordinary income but escape payroll taxes.13Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
To make the S-corp election, file Form 2553 with the IRS no later than two months and 15 days after the start of the tax year you want the election to take effect, or any time during the preceding tax year.14Internal Revenue Service. Instructions for Form 2553 Missing the deadline is not fatal; the IRS offers late-election relief within three years and 75 days.
Setting a Reasonable Salary
The catch is the “reasonable compensation” rule. Salaries paid to owner-employees must be a reasonable allowance for services actually performed.15Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses The IRS weighs several factors:16Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues
- Your training and experience
- Your duties and responsibilities in the business
- The time and effort you put in
- What comparable non-owner employees earn for similar work in your region and industry
- Your dividend history, since large distributions paired with a very low salary raise red flags
If the IRS concludes your salary is too low, it can reclassify distributions as wages and assess back payroll taxes, interest, and penalties. Keep the documentation you used to set your salary: compensation surveys, job postings for comparable roles, and notes on the factors above. That paper trail is your defense if the IRS ever questions the number.
Multi-Member LLCs and Guaranteed Payments
Members of an LLC taxed as a partnership are not employees. They are self-employed for tax purposes and pay self-employment tax on their share of partnership income via Schedule SE.17Internal Revenue Service. Entities 1 Each member’s distributive share flows to their personal return on Schedule K-1, whether or not the money was actually distributed that year.
Some partnerships also make guaranteed payments: fixed amounts paid to a member for services or the use of capital, regardless of business profit. Guaranteed payments count as net earnings from self-employment and carry self-employment tax, just like your distributive share of ordinary income. Your operating agreement should spell out how profits are allocated and whether any members receive guaranteed payments.
Quarterly Estimated Taxes
Owner’s draws and S-corp distributions have no automatic withholding, so you make quarterly estimated tax payments to cover income tax and self-employment tax. The 2026 deadlines:18Internal Revenue Service. Form 1040-ES
- April 15, 2026 (Q1)
- June 15, 2026 (Q2)
- September 15, 2026 (Q3)
- January 15, 2027 (Q4)
You can skip the January 15 payment if you file your 2026 return by February 1, 2027, and pay the full balance with the return.
Miss a payment or underpay, and the IRS charges a penalty accruing at 7 percent per year, compounded daily.19Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026 Two safe harbors avoid it: pay at least 90 percent of your current year’s tax liability, or pay 100 percent of last year’s total tax. If your prior-year adjusted gross income exceeded $150,000 ($75,000 if married filing separately), the second safe harbor rises to 110 percent.20Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty
If you pay yourself a salary through payroll, the federal income tax and FICA withholdings already count toward your estimated payment obligations. Some S-corp owners nudge up salary withholdings to cover income tax owed on their distributions, keeping the process in one place.
Health Insurance for LLC Owners
Your pay method also shapes how you deduct health insurance. If you file Schedule C or receive self-employment income from a partnership, you can deduct premiums for medical, dental, and vision insurance covering yourself, your spouse, and your dependents. The plan must be established under your business, though the policy can be in the business’s name or yours. Claim the deduction on Schedule 1 of Form 1040 using Form 7206.21Internal Revenue Service. Instructions for Form 7206 One important limit: you cannot claim the deduction for any month you were eligible to participate in a subsidized plan through an employer, including your spouse’s employer. Eligibility alone disqualifies you even if you never enrolled.
If your LLC is taxed as an S corporation and you own more than 2 percent, the business can pay your premiums, but it must report those premiums as additional wages in Box 1 of your W-2. Those amounts are not subject to Social Security, Medicare, or FUTA taxes.16Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues You then claim the self-employed health insurance deduction on your personal return, which makes the premiums effectively deductible even though they ran through payroll.
Protect the Liability Shield When You Pay Yourself
Whichever method you use, the way you handle the money matters as much as the amount. The core benefit of an LLC is that it shields your personal assets from business debts and lawsuits. That shield holds only if you treat the LLC as a genuinely separate entity.
Courts can “pierce the veil” and hold owners personally liable when the line between business and personal blurs: using the business account for groceries and personal bills, depositing personal income into the business account, or skipping basic formalities. Keep the separation intact with a few habits:
- Open a dedicated business checking account and run every business transaction through it.
- When you pay yourself, transfer from the business account to your personal account, record the transfer as a draw or salary, and spend from the personal account.
- Keep a written operating agreement covering how distributions are approved and allocated, especially in multi-member LLCs.
- Use accounting software to track every transfer, and retain bank statements that confirm the paper trail.
Writing yourself a draw check, depositing it into a personal account, and buying personal items from there preserves the separation. Swiping the business debit card at the grocery store does not. In a lawsuit, that distinction can decide whether your personal assets stay protected.