How to Pay Yourself With an LLC: Everything to Know

If you’re considering structures for your new business, the limited liability company (LLC) has several important benefits—including personal liability protection, relative ease of set up, and flexible tax treatment.

But once your LLC is up and running and generating revenue, you may wonder: How do you pay yourself with an LLC? The answer depends on how your business elects to be taxed. Read on to learn all about the various ways you can pay yourself as the owner of an LLC.

Understanding LLC tax treatment

The LLC business structure has the key advantage of flexible tax treatment—meaning you get to choose the business’s federal tax classification. This impacts how you pay yourself. Here’s what you need to know about your options for your LLC’s tax treatment. 

Default tax treatment for LLCs

For LLCs, default tax treatments are either sole proprietorship or partnership depending on how many members the LLC has.

• Sole proprietorship.Single member LLCs—that is, LLCs with one member—are taxed as sole proprietorships by default. This means the LLC doesn’t pay corporate income tax. Instead, the business’s profits and losses are passed through to the owner. You’ll report your business income on Schedule C (Form 1040). 

• Partnership. A multi-member LLC has more than one member and is taxed as a partnership by default. Similar to a sole proprietor, the LLC’s profits and losses are passed through to the individual members, who will report their share on their personal tax returns.

LLC members whose businesses are taxed as either a sole proprietorship or partnership are considered to be self-employed. This means they’re obligated to pay self-employment taxes. In 2025, the self-employment tax rate is 15.3%.

Electing corporate taxation

Both single-member and multi-member LLCs can elect to be taxed as either an S corp or C corp. This doesn’t change the business’s legal entity type—just its tax treatment.

• S corp. With this tax classification, the business is still considered a pass-through entity and profits are not subject to corporate income tax. However, owners who are actively involved in the day-to-day operations of the company must be employed by the company on payroll. This means they’re paid a salary that is subject to payroll taxes. Any remaining profits are distributed as pass-through income to the members, which are not subject to self-employment or payroll tax.

• C corp. In this structure, the business itself pays corporate income tax on its profits, and then owners are taxed again on any dividends they receive. This is known as “double taxation” and is less common for small businesses.

If your business elects to be taxed as a corporation, owners are not considered self-employed. Instead, they’re employed by the company. They’re also shareholders and therefore can receive dividends or shareholder distributions.

How to pay yourself with an LLC

• Single-member LLCs taxed as sole proprietorships
• Multi-member LLCs taxed as partnerships
• LLCs taxed as S corporations
• LLCs taxed as C corporations

The method you use to pay yourself largely depends on how your LLC is taxed by the Internal Revenue Service. 

Single-member LLCs taxed as sole proprietorships

The most common way for a member of a single-member LLC to pay themselves is through an owner’s draw. An owner’s draw is transferring money from your business bank account to your personal bank account. There’s no formal payroll process or W-2 involved. You can take draws as frequently as your cash flow allows and as you need them for personal expenses.

Just remember: Maintaining separate business bank accounts and personal bank accounts is essential regardless of your payment method. This ensures clear financial records and upholds your limited liability protection.

Because single member LLCs taxed as sole proprietorships are seen as disregarded entities by the IRS, the business’s profits are considered personal income of the owner. You will pay income tax on all profits at your individual tax rate, regardless of whether you physically take the money out as a draw.

Here are the tax requirements for single-member LLCs:

• Income tax: Your LLC’s profits are passed through directly to your personal tax return (Form 1040, Schedule C). 

• Self-employment tax: As a self-employed individual, you are responsible for paying your self-employment taxes, which cover Social Security and Medicare contributions. You’ll calculate and report this using Schedule SE (Form 1040).

Multi-member LLCs taxed as partnerships

Multi-member LLCs that opt to be taxed as partnerships handle owner payments similarly to single-member LLCs—members can take owner’s draws from the LLC’s profits. These profit distributions are usually based on each member’s ownership percentage, as outlined in the LLC’s operating agreement.

In addition to or instead of owner’s draws, multi-member LLCs can make “guaranteed payments” to members for services rendered to the business, regardless of the LLC’s profitability. These are similar to a salary but do not make the member an employee. Guaranteed payments are considered deductible business expenses for the LLC, and are not subject to income tax withholding.

Here are the tax requirements for multi-member LLCs taxed as partnerships:

• Income tax: The LLC’s profits and losses pass through to each member’s personal income tax return. The LLC files Form 1065 (US Return of Partnership Income) and provides each member with a Schedule K-1, detailing their share of the LLC’s taxable income, deductions, and credits.

• Self-employment tax: Each member is responsible for paying self-employment taxes on their distributive share of the LLC’s profits, as well as on any guaranteed payments they receive.

LLCs taxed as S corporations 

For an S corp, owners who actively work in the business must pay themselves a reasonable salary as a W-2 employee. This salary is subject to regular payroll taxes (Social Security and Medicare taxes, unemployment taxes, and income tax withholding). Any remaining profits after paying the reasonable salary can then be paid as shareholder distributions, which are not subject to self-employment or payroll taxes. This is one reason why LLCs may elect S corp status: It can reduce the overall tax burden compared to paying self-employment tax on all business profits.

It is important to note that some states—such as California—levy a corporate tax on S corps. If you elect for that tax treatment, you’ll be subject to any applicable state S corp taxes as well.

Here’s a breakdown of the tax requirements for an S corp election:

• The LLC files Form 1120-S (US Income Tax Return for an S Corporation).

• The reasonable compensation is reported on a W-2, and the LLC is responsible for payroll tax withholdings and employer contributions.

• Distributions are reported on Schedule K-1 and are generally not subject to self-employment tax, though they are subject to income tax.

• You’ll need to run payroll, often through a payroll service provider, to manage the salary and tax withholdings.

LLCs taxed as C corporations

For a C corp, owners are considered employees and receive a salary (W-2 wages). The LLC can also distribute dividends to shareholders from its after-tax profits.

The tax requirements for a C corp election are:

• The LLC pays corporate income tax on its profits (Form 1120). 

• Salaries paid to owners are deductible business expenses for the corporation.

• Dividends paid to owners are generally subject to double taxation: first at the corporate level and then again at the individual level when received by the owner.

• The LLC is responsible for payroll tax withholdings and employer contributions on salaries.