How to Pay Yourself From an LLC Partnership: Draws and Taxes

As a partner in a multi-member LLC, you pay yourself in one or both of two ways: an owner draw (your share of profits transferred from the business account to your personal account) and a guaranteed payment (a fixed amount for services or capital, paid whether or not the LLC turned a profit). Neither method involves a W-2 or payroll withholding. You owe ordinary income tax and self-employment tax of 15.3 percent on your full allocated share of partnership profits and on any guaranteed payments you receive, regardless of how much cash you actually withdraw.¹ The IRS treats a multi-member LLC as a partnership by default, so the business pays no income tax of its own; everything passes through to the partners in proportion to ownership.²

Owner Draws Based on Your Ownership Share

The most common way partners pay themselves is through owner draws, also called distributive shares. A draw is a transfer of money from the LLC’s bank account to your personal account, sized to your ownership percentage. Own 40 percent of the LLC, and you’re generally entitled to 40 percent of the profits available for distribution.

Two things trip people up here. Draws fluctuate with performance: if the business loses money in a quarter, there may be nothing to distribute. And draws are not a deductible expense for the partnership, because the IRS already considers your share of profits to be your income whether or not you actually withdraw it.³ You owe income tax and self-employment tax on your full allocated share of profits even if every dollar stays in the business bank account. The draw itself is not a taxable event; it’s just a movement of money you’ve already been taxed on.

Guaranteed Payments for Services or Capital

A guaranteed payment is a fixed amount the LLC pays a specific partner for services performed or capital provided, paid regardless of whether the business made a profit. If you run daily operations while another partner is a passive investor, a guaranteed payment compensates you for the extra work. It resembles a salary in that you receive a predictable amount on a regular schedule, but nothing is withheld.⁴

The partnership deducts guaranteed payments as a business expense on Form 1065, which reduces the LLC’s net income before the remainder is split among all partners.⁴ Say the LLC earns $200,000 and pays Partner A a $60,000 guaranteed payment. The remaining $140,000 is divided among all partners (including Partner A) by ownership percentage. Partner A reports both the $60,000 and their share of the $140,000 as ordinary income.

Guaranteed payments are subject to self-employment tax the same way distributive shares are. One difference matters for planning: guaranteed payments do not qualify for the qualified business income deduction, while your distributive share of ordinary business income generally does.⁵

Self-Employment Tax on What You Pay Yourself

Corporate employees split Social Security and Medicare taxes with their employer. Partners pay both halves. The self-employment tax rate is 15.3 percent: 12.4 percent for Social Security and 2.9 percent for Medicare.⁶ You owe it on net earnings from self-employment, which includes both your distributive share of partnership income and any guaranteed payments.⁷

Three rules change what you actually pay:

The 12.4 percent Social Security portion applies only to the first $184,500 of combined earnings in 2026. Income above that ceiling is not subject to the Social Security tax.⁸
If your self-employment income exceeds $200,000 ($250,000 if married filing jointly), you owe an additional 0.9 percent Medicare surtax on the amount above the threshold.⁹
You can deduct half of your self-employment tax as an adjustment to gross income on your personal return. It lowers your taxable income but not the self-employment tax itself.¹⁰

The Limited Partner Question

A true limited partner (someone who doesn’t participate in daily operations and functions as an investor) can generally exclude their distributive share from self-employment tax under IRC 1402(a)(13). Guaranteed payments for services remain self-employment income regardless.⁶ The IRS has never issued final regulations defining “limited partner” for LLC members, and whether an LLC member with fewer than 500 hours of participation qualifies is unsettled. If you plan to rely on the exception, work with a tax professional who follows the current guidance.

The 20 Percent QBI Deduction

Partners may be eligible to deduct up to 20 percent of their qualified business income under Section 199A, which can cut the income tax owed on your distributive share of profits.⁵ Guaranteed payments are excluded from QBI, so only your distributive share of ordinary business income counts toward the deduction.

Section 199A was enacted as part of the Tax Cuts and Jobs Act for tax years 2018 through 2025. Legislation has been proposed to make the deduction permanent and raise the rate to 23 percent starting in 2026. Because the provision’s status may have shifted by the time you file, confirm with the IRS or a tax professional whether it applies to your tax year and at what rate. Partners in specified service businesses (law, medicine, accounting, consulting, and similar fields) face income-based phase-outs that can reduce or eliminate the deduction.

Watch Your Tax Basis Before Taking Cash

Every partner has a tax basis (sometimes called outside basis) in their partnership interest. It starts with your initial contribution, rises with allocated profits, and falls with distributions and allocated losses. Basis matters because cash distributions that exceed your basis are not tax-free. The excess is taxed as a capital gain.¹¹

If your adjusted basis is $100,000 and the LLC distributes $130,000 in cash, the first $100,000 reduces your basis to zero and the remaining $30,000 is reported as a capital gain on your personal return.¹² Your basis cannot drop below zero. Tracking it year over year is your responsibility as a partner, and skipping it leads to surprise tax bills and errors that draw IRS attention.

Paying Yourself Through Benefits

Health Insurance Premiums

When the LLC pays a partner’s health insurance premiums, those premiums are treated as guaranteed payments. The partnership deducts them as a business expense, and the partner reports them as gross income.⁴ The partner can typically then deduct 100 percent of those premiums as a self-employed health insurance deduction on their personal return, offsetting the income inclusion. If the partnership reduces your distributions by the premium amount instead of reporting it as a guaranteed payment, the partnership cannot deduct the cost.

Retirement Plan Contributions

You can also lower taxable income by contributing to a retirement plan tied to your self-employment earnings. A SEP IRA is the most common option for LLC partners, allowing contributions of up to 25 percent of net self-employment earnings, capped at $69,000 for 2026.¹³ Solo 401(k) plans are another option for partnerships with no non-partner employees and can allow higher totals once elective deferrals are included. These contributions reduce your adjusted gross income and may also reduce your QBI for Section 199A purposes.

Forms, K-1s, and Filing Deadlines

The LLC files IRS Form 1065 each year as an information return. It reports the partnership’s total income, deductions, and credits without generating a tax bill for the business.¹⁴ From that return, the partnership issues a Schedule K-1 to each partner showing their individual share of income, deductions, and credits. You use the K-1 to complete your personal Form 1040.³

For calendar-year partnerships, Form 1065 and all K-1s are due by March 15.¹⁵ If the date falls on a weekend or holiday, the deadline shifts to the next business day. The partnership can request an automatic six-month extension by filing Form 7004, but K-1s should still reach partners as early as possible so they can file on time.

Late filing carries a penalty of $255 per partner for each month (or partial month) the return is late, up to 12 months.¹⁶ The IRS also cross-checks the income reported on Form 1065 against each partner’s K-1 and personal return, so mismatches between these forms invite an audit.

Quarterly Estimated Tax Payments

Because nothing is withheld from your draws or guaranteed payments, you’re generally required to make quarterly estimated tax payments if you expect to owe $1,000 or more when you file.¹⁷ Use Form 1040-ES to calculate and submit them. The 2026 deadlines:

April 15, 2026, covering income earned January through March
June 15, 2026, covering April through May
September 15, 2026, covering June through August
January 15, 2027, covering September through December

Missing a deadline or underpaying can trigger a penalty even if you’re owed a refund at year-end. Two safe harbors protect you: pay at least 90 percent of the current year’s tax liability through estimated payments, or pay 100 percent of last year’s total tax (110 percent if your adjusted gross income exceeded $150,000).¹⁸ The prior-year method is simpler for most partners because it doesn’t require projecting current-year income precisely.

Set the Rules in Your Operating Agreement

Before money moves, your LLC’s operating agreement should spell out how often distributions are made, what percentage each partner receives, and whether any partner earns guaranteed payments for management or specialized services. Without a written agreement, most states will apply their default LLC statute, which may not reflect what the partners actually intended. The agreement should also require the LLC to maintain a capital account for each partner tracking contributions, allocated profits and losses, and withdrawals. Clean records protect the partnership if a dispute arises, a partner leaves, or the business dissolves, and they give your accountant what’s needed to prepare accurate returns.

1
Internal Revenue Service. Paying Yourself
2
Internal Revenue Service. LLC Filing as a Corporation or Partnership
3
Internal Revenue Service. Partners Instructions for Schedule K-1 (Form 1065) (2025)
4
Internal Revenue Service. Publication 541 – Partnerships
5
Internal Revenue Service. Qualified Business Income Deduction
6
Internal Revenue Service. Entities 1
7
Internal Revenue Service. Self-Employment Tax and Partners
8
Social Security Administration. Contribution and Benefit Base
9
Internal Revenue Service. Topic No. 560, Additional Medicare Tax
10
Internal Revenue Service. Topic No. 554, Self-Employment Tax
11
Office of the Law Revision Counsel. 26 U.S. Code 731 – Extent of Recognition of Gain or Loss on Distribution
12
Internal Revenue Service. Partners Outside Basis
13
Internal Revenue Service. SEP Contribution Limits (Including Grandfathered SARSEPs)
14
Internal Revenue Service. About Form 1065, U.S. Return of Partnership Income
15
Internal Revenue Service. Publication 509 (2026), Tax Calendars
16
Internal Revenue Service. 2025 Instructions for Form 1065 – U.S. Return of Partnership Income
17
Internal Revenue Service. Estimated Taxes
18
Internal Revenue Service. Estimated Tax – Frequently Asked Questions