A limited liability partnership has no tax rate of its own. The LLP tax rate question really points to two numbers stacked on each partner’s individual return: an ordinary income tax rate between 10% and 37% for 2026, plus a 15.3% self-employment tax on partnership earnings. A 20% deduction on qualified business income can lower the effective ordinary rate substantially for partners who qualify.
Why There Is No Entity-Level Rate
Federal law says a partnership “shall not be subject to the income tax,” and partners are “liable for income tax only in their separate or individual capacities.”1Office of the Law Revision Counsel. 26 USC 701 – Partners, Not Partnership, Subject to Tax The LLP files an informational return, but it never writes a check to the IRS for income tax. Revenue, losses, deductions, and credits pass through to individual partners in proportion to their ownership shares, or whatever allocation the partnership agreement specifies.
This single layer of taxation is one of the main reasons professional firms choose the LLP structure. C corporations pay tax at the entity level, then shareholders pay again on dividends. LLP partners avoid that second hit. The trade-off: all partnership income lands on a partner’s return in the year it’s earned, whether or not any cash was actually distributed.
2026 Ordinary Income Tax Brackets
Because partnership income shows up on each partner’s individual return, the rate depends on total taxable income and filing status. For 2026, the IRS set seven brackets for single filers:2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
- 10% on income up to $12,400
- 12% on $12,401 to $50,400
- 22% on $50,401 to $105,700
- 24% on $105,701 to $201,775
- 32% on $201,776 to $256,225
- 35% on $256,226 to $640,600
- 37% on income over $640,600
Married couples filing jointly get wider brackets. The 22% rate starts at $100,801, the 24% rate at $211,401, and the top 37% rate applies only above $768,700.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 The brackets are progressive, so a partner earning $300,000 doesn’t pay 35% on the whole amount. The first $12,400 is taxed at 10%, the next slice at 12%, and so on up the ladder.
Self-Employment Tax Adds 15.3%
Here is where the bill gets heavier than many new partners expect. Partners are not employees, so no one withholds Social Security or Medicare from their pay. Instead, partners owe self-employment tax on their share of partnership earnings at a combined rate of 15.3%.3Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) That breaks into 12.4% for Social Security and 2.9% for Medicare.
The Social Security portion applies only up to the wage base limit, which is $184,500 for 2026.4Social Security Administration. Contribution and Benefit Base Above that threshold, the 12.4% stops, but the 2.9% Medicare tax continues with no cap. Partners earning above $200,000 (single) or $250,000 (married filing jointly) also owe an additional 0.9% Medicare surtax on the excess.5Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates
One offset softens the blow. Partners can deduct the employer-equivalent portion of their self-employment tax (roughly half) when calculating adjusted gross income.6Office of the Law Revision Counsel. 26 USC 1402 – Definitions This deduction lowers taxable income and reduces the income tax owed. It doesn’t reduce the self-employment tax itself, but it keeps the combined burden from being as steep as 15.3% stacked on top of the full marginal income tax rate.
Guaranteed payments (fixed salary-like amounts paid to partners before splitting remaining profits) are also subject to self-employment tax, just like a distributive share of profit.7Internal Revenue Service. Publication 541 (12/2025), Partnerships A partner who receives both guaranteed payments and a share of remaining profit owes self-employment tax on the combined total.
The 20% Qualified Business Income Deduction
The Section 199A deduction can take a significant bite out of an LLP partner’s tax bill. Eligible partners may deduct up to 20% of their qualified business income from the partnership, cutting the amount subject to ordinary rates. For a partner in the 37% bracket, this effectively drops the top rate on that income closer to 29.6%.
The full 20% deduction is available without restriction to partners whose 2026 taxable income falls below $201,750 (single) or $403,500 (married filing jointly). Above those thresholds, the deduction begins to phase out based on wages paid by the partnership and the value of qualified property it holds. Partners in specified service trades or businesses, a category that covers most law firms and accounting practices, face a harder limit. Once taxable income exceeds $276,750 (single) or $553,500 (married filing jointly), partners in those service fields lose the deduction entirely.
This is one of the biggest planning levers available to LLP partners, especially those whose income sits near the phase-out thresholds. Timing income, maximizing retirement contributions, or making charitable contributions to stay under the line can save tens of thousands in tax.
Capital Gains Rates When the LLP Sells Assets
Not all partnership income is ordinary. If the LLP sells an asset held for more than a year, the resulting long-term capital gain passes through to partners and qualifies for preferential rates. For 2026, the long-term capital gains brackets for single filers are:
- 0% on taxable income up to $49,450
- 15% on $49,451 to $545,500
- 20% on income over $545,500
For married couples filing jointly, the 15% rate starts above $98,900 and the 20% rate applies above $613,700. Most partners at professional LLPs will land in the 15% or 20% tier for any capital gains that flow through. These rates apply only to long-term gains. Short-term gains from assets held a year or less are taxed at ordinary income rates.
Net Investment Income Tax for Passive Partners
Partners who do not materially participate in the LLP’s business face an additional 3.8% net investment income tax on their share of partnership earnings. This tax applies when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly.8Office of the Law Revision Counsel. 26 US Code 1411 – Imposition of Tax The 3.8% is assessed on the lesser of the partner’s net investment income or the amount by which modified AGI exceeds the threshold.
Partners who actively participate in the LLP’s operations are generally not subject to this tax on their partnership income, though they still owe it on passive income from other sources. The distinction matters most at large LLPs where some partners function more as investors than operators.
State Taxes and the Pass-Through Entity Election
Most states follow the federal pass-through model. The partnership owes no state income tax, and each partner reports their share on their individual state return. But many states also impose entity-level fees or minimum taxes on LLPs to maintain registration. These can be a flat annual fee of a few hundred dollars or a tiered fee based on gross income. Some states charge a minimum franchise tax whether the LLP turned a profit or not. Annual registration fees typically run between $25 and $750 depending on the state.
About 30 states now offer an elective pass-through entity tax that works around the federal cap on state and local tax deductions. In states offering this election, the LLP pays state income tax directly at the entity level, each partner receives a credit on their state return for their share of the tax paid, and the partnership claims a federal deduction for the full amount. The IRS confirmed in Notice 2020-75 that it would respect these entity-level elections. For partners in high-tax states, this election can produce meaningful federal tax savings.
State rules vary widely, so the total tax burden on LLP income depends heavily on where the partnership operates and where its partners live.