An LLC by itself doesn’t have a tax rate. The taxes an LLC has to pay depend on how the IRS classifies it, but for most owners the bill has the same building blocks: federal income tax on business profits (paid on the owner’s personal return in the typical pass-through setup), 15.3 percent self-employment tax on those profits, payroll taxes if the LLC has employees, and a mix of state fees, sales tax, and sometimes franchise or gross-receipts tax on top. Owners who elect S-corporation or C-corporation treatment change that mix in specific ways.
How the IRS Classifies Your LLC
The IRS has no separate tax category for LLCs. It slots each one into an existing classification and taxes it under those rules.
A single-member LLC is treated as a “disregarded entity.”1Internal Revenue Service. Single Member Limited Liability Companies The LLC itself files no federal income tax return. You report the business’s income and expenses on your Form 1040, usually on Schedule C, and pay tax on the net profit at your individual rate. Rental activity goes on Schedule E; farming goes on Schedule F.
A multi-member LLC defaults to partnership treatment.2Internal Revenue Service. LLC Filing as a Corporation or Partnership The LLC files Form 1065, which is informational, and issues each member a Schedule K-1 showing their share of profits, losses, deductions, and credits. Members report those amounts on their personal returns and pay tax at their individual rates. Allocation follows whatever the operating agreement specifies, typically ownership percentage.
Form 1065 is due March 15 for calendar-year LLCs. Miss that date and the IRS assesses a monthly penalty charged per partner. Single-member LLCs follow the owner’s personal return deadline, generally April 15.
When Electing S-Corp or C-Corp Status Changes the Bill
Either default classification can be replaced by a corporate election, and the reason to do it is almost always about employment taxes or reinvestment.
C-Corporation
Filing Form 8832 elects C-corporation treatment.3Internal Revenue Service. About Form 8832, Entity Classification Election The LLC becomes its own taxpayer, files Form 1120, and pays the 21 percent federal corporate rate on its profits.2Internal Revenue Service. LLC Filing as a Corporation or Partnership Members then pay personal tax again on any dividends. That double layer is the main downside, but it can suit a business that plans to keep profits in the company rather than distribute them.
S-Corporation
Filing Form 2553 elects S-corporation status, which preserves pass-through taxation but reshapes how self-employment tax works.4Internal Revenue Service. About Form 2553, Election by a Small Business Corporation The LLC files Form 1120-S and issues K-1s. Members who work in the business must pay themselves a reasonable salary, and only that salary carries Social Security and Medicare tax. The remaining profits, distributed as shareholder distributions, escape those payroll taxes.
The IRS scrutinizes what counts as reasonable. Courts have repeatedly rejected token salaries paired with large distributions.5Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers The agency weighs your training, duties, hours, and what similar businesses pay for similar work.6Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues If it decides you underpaid yourself, it can recharacterize distributions as wages and assess back taxes plus penalties. S-corporation returns are due March 15.
Self-Employment Tax
If your LLC is taxed as a sole proprietorship or partnership, you owe self-employment tax on your share of profits. This covers Social Security and Medicare, both halves. The combined rate is 15.3 percent: 12.4 percent for Social Security and 2.9 percent for Medicare.7Internal Revenue Service. Topic No. 554, Self-Employment Tax
The Social Security portion stops at an annually adjusted wage base. For 2026 that cap is $184,500.8Social Security Administration. Contribution and Benefit Base Past that point, only the 2.9 percent Medicare piece keeps applying. The calculation happens on Schedule SE, attached to your 1040.7Internal Revenue Service. Topic No. 554, Self-Employment Tax You can deduct half of the self-employment tax when figuring adjusted gross income, which lowers your income tax, though not the SE tax itself.
Additional Medicare Tax
Higher-earning members owe an extra 0.9 percent Additional Medicare Tax on self-employment income above set thresholds, which are not adjusted for inflation.9Internal Revenue Service. Topic No. 560, Additional Medicare Tax Those thresholds are $200,000 for single, head of household, and qualifying surviving spouse filers; $250,000 for married filing jointly; and $125,000 for married filing separately. Reporting happens on Form 8959.10Internal Revenue Service. Instructions for Form 8959 There is no matching contribution on the extra 0.9 percent; the whole amount comes from you.
The Qualified Business Income Deduction
Members whose LLC is taxed as a sole proprietorship, partnership, or S corporation may deduct up to 20 percent of their qualified business income under Section 199A. Originally set to expire after 2025, the deduction was made permanent in July 2025. It reduces taxable income (not self-employment tax) and is claimed on Form 8995 or Form 8995-A.11Internal Revenue Service. Instructions for Form 8995
For 2026, the math is simple below $403,500 of taxable income on a joint return, or $201,750 for other filers: you take 20 percent of qualified business income or 20 percent of taxable income, whichever is less. Above those numbers, the deduction begins phasing out based on wages the business pays and the value of its qualified property. Owners of specified service businesses, including law, medicine, consulting, accounting, and financial services, lose the deduction entirely once income exceeds $553,500 (joint) or $276,750 (other filers). Non-service businesses can still claim a reduced amount above those thresholds using the more involved Form 8995-A.
Quarterly Estimated Tax Payments
Pass-through LLC income arrives without withholding, so members generally have to send the IRS money four times a year. You must make estimated payments if you expect to owe $1,000 or more for the year after withholding and refundable credits.12Internal Revenue Service. Form 1040-ES, Estimated Tax for Individuals
For the 2026 tax year, the deadlines are April 15, 2026, June 15, 2026, September 15, 2026, and January 15, 2027. The January installment can be skipped if you file your 2026 return and pay the balance by February 1, 2027.12Internal Revenue Service. Form 1040-ES, Estimated Tax for Individuals
To dodge the underpayment penalty, pay in at least 90 percent of the current year’s tax or 100 percent of last year’s, whichever is smaller. If your prior-year adjusted gross income was over $150,000 ($75,000 if married filing separately), the 100 percent figure rises to 110 percent.13Internal Revenue Service. Underpayment of Estimated Tax by Individuals Penalty New LLC owners get caught here often: the first profitable year produces a tax bill they didn’t budget for, and then a penalty piles on. The interest rate on underpayments adjusts quarterly and sits at 7 percent for early 2026.14Internal Revenue Service. Quarterly Interest Rates
Payroll Taxes When You Have Employees
Hiring changes the tax picture significantly. Under FICA, you withhold 6.2 percent for Social Security and 1.45 percent for Medicare from each employee’s wages, then match those amounts from the LLC.15Internal Revenue Service. Topic No. 751, Social Security and Medicare Withholding Rates The combined 15.3 percent applies up to the Social Security wage base. Reporting is quarterly on Form 941.
Federal Unemployment Tax (FUTA) is paid entirely by the employer, with nothing withheld from workers. The statutory rate is 6.0 percent on the first $7,000 of each employee’s annual wages. Most employers get a credit of up to 5.4 percent for state unemployment taxes paid, so the effective FUTA rate typically lands at 0.6 percent.16Internal Revenue Service. Topic No. 759, Form 940 – Employers Annual Federal Unemployment (FUTA) Tax Return
Payroll taxes carry unusual personal risk. If the LLC fails to remit withheld employment taxes, the IRS can assess the Trust Fund Recovery Penalty against any individual responsible for the payroll function. The penalty equals 100 percent of the unpaid tax.17Office of the Law Revision Counsel. 26 USC 6672 – Failure to Collect and Pay Over Tax It passes straight through the LLC’s liability shield to the person in charge, one of the few settings in which LLC ownership provides no protection.
State and Local Taxes
Federal is only part of the answer. State obligations vary widely, and they catch a lot of owners off guard.
Nearly every state requires LLCs to file an annual or biennial report with a fee. Fees range from nothing in a few states to more than $800 per year, with most under $100. Miss the payment and the state can administratively dissolve the LLC; reinstatement usually means back fees plus late penalties.
If your LLC sells physical products or certain services, you likely need to register for sales tax, collect it from customers, and remit it to the state revenue department. Combined state and local sales tax rates run from under 2 percent in the lowest-tax jurisdictions to over 9.5 percent in the highest, and some states impose no sales tax. Filing frequency is often monthly or quarterly.
Some states impose income taxes, gross receipts taxes, or franchise taxes on LLCs regardless of federal classification, which can reach even a single-member LLC that owes no entity-level federal tax. Excise taxes may apply in industries like alcohol, tobacco, fuel, or cannabis. Research your specific state’s rules early; this is where compliance most often slips.
Penalties for Filing or Paying Late
The IRS runs two separate late-penalty tracks that can stack. Failure to pay the tax shown on your return costs 0.5 percent of the unpaid balance per month, capped at 25 percent.18Office of the Law Revision Counsel. 26 USC 6651 – Failure to File Tax Return or to Pay Tax Failure to file is steeper: 5 percent per month up to the same 25 percent cap. When both apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay amount, but the total grows quickly. Both accrue interest that compounds daily at the quarterly rate.
Filing on time even without full payment avoids the more expensive failure-to-file penalty and leaves installment options open for the balance. The Trust Fund Recovery Penalty follows its own track: the IRS must send written notice at least 60 days before assessing it, and once assessed it has the same collection power as any other tax debt, including liens and levies against personal assets.17Office of the Law Revision Counsel. 26 USC 6672 – Failure to Collect and Pay Over Tax