How a single-member LLC is taxed

Forming a single-member LLC changes your legal position. For federal income tax it changes almost nothing. The IRS calls it a "disregarded entity," and unless you elect otherwise you're taxed the way a sole proprietor is. The state is a different story, and in some states the LLC costs real money every year.

Disregarded by default

The IRS page on single-member LLCs says the LLC's activities "should be reflected on its owner's federal tax return." There is no separate federal income tax return for the LLC.

Where it goes on your return depends on what the LLC does:

Most service businesses land on Schedule C. Profit flows to your Form 1040 along with your other income, and you pay income tax at your own rates. You may also get the QBI deduction on that profit.

Self-employment tax

This is the part that surprises people. On Schedule C profit you owe self-employment tax on top of income tax. Per Topic 554 it's 12.4% for Social Security and 2.9% for Medicare, on 92.35% of net earnings. It starts once net earnings hit $400. Half of it is deductible when you figure AGI.

The Social Security part stops at the 2026 wage base of $184,500 (Topic 751). Medicare keeps going.

You can't avoid it by paying yourself a salary. The Treasury regulation on disregarded entities says the owner "will be subject to self-employment tax" on the LLC's activities, and its example says the owner "is not an employee" of the LLC. How draws work is in how to pay yourself.

Example: $80,000 of profit

A designer runs a single-member LLC in California with $80,000 of profit in 2026.

Income tax comes on top, at the owner's own rates, on profit minus the deductible half and any QBI deduction. The self-employment tax calculator runs this for your own number. Nothing is withheld, so most owners pay quarterly estimated tax.

State LLC fees

The federal side ignores the LLC. States usually don't.

California. Every LLC that is doing business in the state, or registered with it, owes an $800 annual tax, per the FTB. It's due even if you don't do any business, until you cancel the LLC. The first payment is due by the 15th day of the 4th month after you file with the Secretary of State. An LLC with more than $250,000 of California income also pays a fee on top:

The LLC files its own Form 568 every year, even though the IRS ignores it.

Delaware. LLCs pay an annual tax of $400, due on or before June 1. There's no annual report. Pay late and it's a $200 penalty plus 1.5% interest per month.

Other states charge annual report fees or franchise taxes of their own. Check your state before you form. The steps are in how to form an LLC.

When it files differently

You hire employees. For employment tax the LLC is a separate entity. For wages paid after January 1, 2009, the IRS says the LLC has to use its own name and EIN to report and pay them. It files payroll returns as the employer, while its profit still goes on your Schedule C.

You elect corporate treatment. The IRS LLC page says an LLC can file Form 8832 to be taxed as a corporation. Most owners who do this want an S corp. The Form 2553 instructions say an eligible entity that makes a timely S election is treated as a corporation from that date and doesn't need Form 8832. The deadline is no more than 2 months and 15 days after the start of the tax year the election takes effect, or any time in the year before. After that you're on payroll and file Form 1120-S. The S corp savings calculator shows where that starts to pay, and the business structure switch calculator shows the cost of moving.

A second member joins. An LLC with two or more members is a partnership by default and files Form 1065.

Do you need an EIN?

The IRS answer: "An LLC will need an EIN if it has any employees or if it will be required to file any of the excise tax forms." With no employees and no excise tax, income tax reporting uses your own SSN or EIN.

Many owners get one anyway. The IRS page notes you may need it to open a bank account, or if state tax law requires it. Getting one is free and takes minutes online. Form the LLC with the state first, then apply. The IRS says you never have to pay a fee for an EIN, so skip any site that charges for one.