Introduction
Starting a Limited Liability Company (LLC) comes with several perks, but one common question new business owners ask is: how do LLC owners get paid?
The answer depends on your LLC’s tax classification and structure. Whether you’re a single-member or multi-member LLC, this guide will explain the payment methods available to LLC owners.
1. Owner’s Draw (Default for Most LLCs)
In most cases, especially with single-member and multi-member LLCs taxed as sole proprietorships or partnerships, owners are not considered employees. Instead, they take owner’s draws—withdrawals from the business profits.
How It Works:
- No paycheck or W-2 required
- Profits “pass through” to the owner’s personal tax return
- Owners pay self-employment taxes on income
2. Guaranteed Payments (For Multi-Member LLCs)
If you’re in a multi-member LLC, you can receive guaranteed payments, which are predetermined amounts paid regardless of company profits.
Benefits:
- Consistent income for partners
- Deductible as a business expense
- Still reported on personal tax returns
3. Payroll (If LLC Elects to Be Taxed as a Corporation)
If your LLC elects to be taxed as an S Corporation or C Corporation, owners who actively work in the business can be treated as employees and receive a regular paycheck.
Key Points:
- Must run payroll and withhold taxes
- Pay yourself a reasonable salary
- May allow you to reduce self-employment taxes
Comparison: LLC Owner Compensation Methods
| Method | Tax Treatment | Best For |
|---|---|---|
| Owner’s Draw | Pass-through taxation | Sole-member and simple LLCs |
| Guaranteed Payments | Self-employment income | Multi-member LLCs |
| Payroll | W-2 income + potential dividends | LLCs taxed as S or C Corps |
Important Considerations
- All LLC owners pay self-employment taxes unless treated as a corporation.
- It’s essential to maintain proper bookkeeping for owner distributions.
- Consult a tax advisor to choose the right compensation strategy.
Conclusion
So, how do LLC owners get paid? It depends on how the LLC is structured and taxed. Most take draws or guaranteed payments, but electing corporate tax status opens payroll options.
