How to Pay Yourself in a Single-Member LLC: Draw, Salary, and Taxes

If you own a single-member LLC, you pay yourself in one of two ways: an owner’s draw, which is the default, or a salary combined with distributions, which is only available if you’ve elected to have the IRS tax your LLC as an S-corporation. Which path applies to you depends entirely on your federal tax classification, and each comes with its own withholding rules, forms, and deadlines. Getting the mechanics right protects both your tax position and the liability shield your LLC gives you.

Set Up Before Your First Payment

Before any money moves, get an Employer Identification Number by filing Form SS-4 with the IRS. You can apply online and receive the nine-digit EIN immediately.1Internal Revenue Service. Instructions for Form SS-4 You’ll need it to open a business bank account and file tax returns.

Open a dedicated business bank account using your articles of organization and EIN. Every payment to yourself should move from that account to your personal account, never the reverse and never straight from a client. Mixing personal and business funds is the classic argument creditors use to pierce the corporate veil and hold you personally liable for LLC debts.

Owner’s Draws Under the Default Classification

A single-member LLC is a disregarded entity for federal tax purposes unless you elect otherwise.2Internal Revenue Service. Single Member Limited Liability Companies Under that default, you pay yourself by taking an owner’s draw: a transfer from the business account to your personal account. Write a check to yourself, initiate an online transfer, or use any method your bank supports. Label it clearly. On a check, put “owner’s draw” in the memo line; for digital transfers, log the date, amount, and purpose in your accounting software or a spreadsheet.

How much you can draw is limited by cash flow and by your basis in the LLC. Your basis starts with what you contributed, rises with profits, and falls with losses and draws. If you withdraw more than your adjusted basis, the excess is treated as a capital gain on your return. And if you drain the business to the point it can’t pay vendors or debts, creditors can argue the LLC is undercapitalized, which weakens your liability protection.

How Draws Are Taxed

The draw itself is not a taxable event. The IRS taxes you on the LLC’s entire net profit for the year regardless of how much you actually took out. You report that profit on Schedule C of Form 1040 and calculate self-employment tax on Schedule SE.3Internal Revenue Service. About Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship)

Self-employment tax is 15.3% total: 12.4% for Social Security and 2.9% for Medicare. It applies to 92.35% of your net earnings, and you can deduct half of what you paid when calculating adjusted gross income.4Internal Revenue Service. Topic No. 554, Self-Employment Tax The Social Security portion applies only to earnings up to $184,500 in 2026.5Social Security Administration. Contribution and Benefit Base Earnings above that are hit only by the 2.9% Medicare piece. If your net self-employment income exceeds $200,000 ($250,000 if married filing jointly), you owe an additional 0.9% Medicare tax on the amount above that threshold.6Internal Revenue Service. Topic No. 560, Additional Medicare Tax

Switching to S-Corporation Tax Treatment

You can elect to have the IRS tax your LLC as an S-corporation. Your state-level LLC structure doesn’t change; only the federal tax treatment does. The point of the election is that distributions taken beyond a salary aren’t subject to self-employment tax, which can save real money if your business earns well above a reasonable salary for what you do.

File Form 2553 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. The form asks for the effective date, your ownership percentage, and your signature as sole shareholder.7Internal Revenue Service. Instructions for Form 2553 Once approved, your LLC is taxed as a corporation, which means running payroll, filing a corporate return, and usually paying an accountant. The election makes sense only when tax savings on distributions outweigh those added costs. Modest profits generally don’t justify the paperwork.

Paying Yourself Salary as an S-Corp

Under S-corp tax treatment you can no longer just take draws. You have to run payroll for yourself first, then take distributions on top. Payroll means gross pay, tax withholding, and deposits to the IRS on a set schedule.

Two categories of employment tax come out of every paycheck:

The combined employee and employer shares total 15.3% on wages up to the Social Security cap. Salaries above $200,000 ($250,000 for joint filers) also trigger the extra 0.9% Medicare withholding on wages over the threshold.6Internal Revenue Service. Topic No. 560, Additional Medicare Tax Federal income tax is withheld based on the Form W-4 you fill out for yourself.10Internal Revenue Service. About Form W-4, Employee’s Withholding Certificate

The business also owes Federal Unemployment Tax on the first $7,000 of your wages at 6.0%. State unemployment credits typically drop the effective rate to 0.6%.11Internal Revenue Service. Topic No. 759, Form 940 – Employer’s Annual Federal Unemployment (FUTA) Tax Return S-corporation officers who work for the business count as employees for FUTA purposes, even if you’re the only shareholder.12Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers

Deposits must be electronic, made through EFTPS, your business tax account, or IRS Direct Pay.13Internal Revenue Service. Depositing and Reporting Employment Taxes Most small businesses use the monthly schedule: taxes on wages paid during a month are due by the 15th of the following month. You qualify for monthly deposits if you reported $50,000 or less in employment taxes during the lookback period (the four quarters ending the previous June 30). Above that, you move to a semi-weekly schedule.14Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide

What Counts as a Reasonable Salary

The IRS requires S-corporation owners who perform services for the business to pay themselves a reasonable salary before taking any distributions. This isn’t optional. Distributions taken without adequate wages first can be reclassified as salary by the IRS, which brings back employment taxes, interest, and penalties.15Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues

There’s no formula. The IRS looks at your training and experience, your duties, the hours you put in, what comparable businesses pay for similar services, and whether the business earns its money mainly from your personal effort or from other employees, capital, and equipment. If the revenue is primarily driven by you, more of it needs to be classified as wages. Setting a token salary and pulling everything else as distributions from a business built on your personal work invites scrutiny.

Taking Distributions

Once you’ve paid yourself a reasonable salary and covered the business’s expenses and tax obligations, additional money can come out as a distribution. Distributions aren’t subject to Social Security or Medicare tax, which is the whole point of the election. You transfer the funds from the business account to your personal account the same way you would a draw.

Distributions have to come from accumulated profits, and you shouldn’t take out more than the business can afford. Distributions above your stock basis are generally taxed as capital gains.

If the S-corp pays your health insurance premiums, those premiums have to be reported as wages in Box 1 of your W-2, but they aren’t subject to Social Security or Medicare tax.15Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues You can then take a self-employed health insurance deduction on your personal return, which offsets the added income.

Year-End Reporting

Disregarded Entity

All business income and expenses land on your personal return. You list gross revenue and deductible expenses on Schedule C to arrive at net profit, then calculate self-employment tax on Schedule SE. The draws themselves don’t appear as separate taxable events; they’re just movements of money you’ve already been taxed on.2Internal Revenue Service. Single Member Limited Liability Companies

S-Corporation

The corporation files Form 1120-S, its own return covering total income and expenses.16Internal Revenue Service. About Form 1120-S, U.S. Income Tax Return for an S Corporation It also issues you a W-2 for your salary, which must go to you and the Social Security Administration by January 31 of the following year.17Social Security Administration. Deadline Dates to File W-2s The 1120-S also generates a Schedule K-1 showing your share of remaining profits or losses. On your personal Form 1040 you report the W-2 wages (taxed like any employee’s pay) and the K-1 income (subject to income tax but not self-employment tax).

Quarterly Estimated Taxes

Either payment method usually leaves you owing estimated taxes during the year. If you expect to owe $1,000 or more in federal tax after withholdings and credits, the IRS requires quarterly payments.18Internal Revenue Service. Estimated Taxes That covers self-employment tax on Schedule C profit and income tax on K-1 distributions, neither of which is caught by payroll withholding.

The 2026 deadlines are:19Internal Revenue Service. Form 1040-ES, Estimated Tax for Individuals

  • 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 and pay the balance by February 1, 2027. To avoid an underpayment penalty, pay at least 90% of the current year’s liability or 100% of last year’s tax, whichever is smaller. If your S-corp salary withholding covers your full tax bill you may not need separate estimated payments, but most S-corp owners still owe estimated tax on their distribution income.

Penalties for Missing Deadlines

Late payroll deposits trigger a tiered penalty:20Internal Revenue Service. Failure to Deposit Penalty

  • 1 to 5 days late: 2% of the unpaid deposit
  • 6 to 15 days late: 5%
  • More than 15 days late: 10%
  • After an IRS notice demanding payment: 15%

The tiers replace each other rather than stack. A deposit 20 days late owes 10%, not the sum of the lower tiers.

Filing Form 1120-S late costs $255 per month or partial month, multiplied by the number of shareholders (one, for a single-member LLC). The penalty can run up to 12 months, capping at $3,060 for a single shareholder. If the return is more than 60 days late, the minimum penalty is the lesser of the tax due or $525. These figures are adjusted annually for inflation.21Internal Revenue Service. Instructions for Form 1120-S

Under the default classification, missed self-employment or income tax generally shows up as an underpayment penalty and interest when you file. Keeping quarterly estimated payments current is the simplest way to avoid it.

One Deduction That Applies Either Way

Whichever method you use, you may qualify for a deduction of up to 20% of your qualified business income under Section 199A.22Office of the Law Revision Counsel. 26 U.S. Code 199A – Qualified Business Income The deduction was made permanent in 2025, and starting in 2026 a taxpayer with at least $1,000 of qualified business income from an active business can claim a minimum deduction of $400. For S-corp owners, qualified business income is the K-1 income; the W-2 salary doesn’t count. For disregarded-entity owners, it’s the Schedule C net profit. Phase-outs apply to specified service trades such as health care, law, consulting, athletics, and financial services once taxable income exceeds $150,000 for joint filers or $75,000 for others in 2026.