LLC Tax Rate 2026: How LLCs Are Taxed, With Examples

Quick answer: There is no single LLC tax rate. By default, LLC profits pass through to the owners, who pay their personal income tax rate (10% to 37% federally) plus 15.3% self-employment tax. An LLC can elect S corporation taxation to cut self-employment tax, or C corporation taxation at a flat 21% federal rate, plus tax on dividends.

A limited liability company is a state law entity. The IRS does not have an "LLC" tax category, so it taxes an LLC as a sole proprietorship, partnership, S corporation or C corporation depending on how many owners it has and what it elects. That flexibility is why "what is the LLC tax rate?" has several answers. This guide explains each option, compares the effective rates on the same profit, covers state taxes, and lists the mistakes owners make. It is general information as of October 2026, not tax advice.

How is an LLC taxed? The four options

Tax classification	Who it applies to	Federal return	How profit is taxed
Disregarded entity (sole proprietorship)	Single-member LLC by default	Owner's Form 1040 with Schedule C	Owner's income tax rate plus self-employment tax on all profit
Partnership	Multi-member LLC by default	Form 1065, K-1s to members	Each member pays income tax and generally SE tax on their share
S corporation	LLC that files Form 2553	Form 1120-S, K-1s to owners	Owners take a reasonable salary (payroll taxes) and pass-through profit (income tax only)
C corporation	LLC that files Form 8832	Form 1120	21% corporate tax, then tax on dividends paid to owners

The IRS explains these classifications on its LLC page. For filing steps, see how to file taxes as an LLC.

LLC tax rate under default pass-through taxation

Under the default rules, the LLC itself pays no federal income tax. Owners pay:

• Self-employment tax of 15.3% on 92.35% of net earnings (12.4% Social Security up to the $184,500 wage base for 2026, plus 2.9% Medicare on everything, and 0.9% additional Medicare above $200,000 single). See self-employment tax.
• Federal income tax at graduated rates from 10% to 37%, after deducting half of SE tax, the standard or itemized deduction, and up to 20% of qualified business income under Section 199A, which the 2025 tax law made permanent. See the QBI deduction.
• State income tax where applicable.

Owners pay tax on profit whether or not they withdraw it. Because no tax is withheld, they make quarterly estimated payments; see how much to set aside for taxes.

LLC taxed as an S corporation

With an S corp election, an owner who works in the business must be paid a reasonable salary through payroll. Salary carries FICA (7.65% employee plus 7.65% employer). Remaining profit passes through to the owner's return and is subject to income tax but not self-employment or FICA tax. The saving is the payroll tax avoided on profit above the salary, minus the extra costs of running payroll and filing Form 1120-S. Salaries that are unreasonably low invite IRS scrutiny. Our guides to Form 2553 and the S corp election and S corp vs LLC go deeper.

LLC taxed as a C corporation: the 21% rate

An LLC can elect corporate taxation on Form 8832. The corporation pays a flat 21% federal tax on its taxable income. Salaries paid to owner-employees are deductible to the company and taxed to the owner as wages. Profits paid out as dividends are taxed again on the owner's return, usually at qualified dividend rates of 0%, 15% or 20%, plus 3.8% net investment income tax at higher incomes. That double taxation is why C corp status suits businesses that retain profits rather than distribute them. See LLC vs corporation for the legal differences.

Worked example: $120,000 of profit, three ways

A single-member LLC has $120,000 of profit before owner pay. The owner is single, with no other income. The table compares only the taxes that differ most between structures; income tax, state tax and fees are discussed below. Figures are rounded and illustrative.

Item	Default (disregarded)	S corp ($60,000 salary)	C corp (no salary, all paid as dividend)
Self-employment or payroll tax	$120,000 x 92.35% x 15.3% = $16,955	$60,000 x 15.3% = $9,180	$0
Corporate income tax	$0	$0	$120,000 x 21% = $25,200
Dividend tax on $94,800 paid out (assumed 15%)	Not applicable	Not applicable	$14,220
Extra admin costs (illustrative)	$0	About $1,500 (payroll service, Form 1120-S prep)	About $1,500
Total of these items	$16,955	$10,680	$40,920

The owner also pays personal income tax in the default and S corp cases, at roughly similar amounts, because the same profit lands on the personal return (the S corp version is slightly lower because the employer half of payroll tax is deductible to the business). In the C corp case, part of the dividend may fall in the 0% bracket and some owners would pay a salary instead, so real totals vary. Even so, the pattern is typical: for an owner who takes all the profit out, S corp taxation tends to cost least at this profit level, and C corp taxation costs most.

What about state LLC taxes and fees?

State treatment adds another layer:

• Income tax: most states tax pass-through profit on the owner's individual return; a handful of states have no personal income tax.
• Annual fees and franchise taxes: California charges LLCs an $800 minimum annual tax plus a fee based on gross receipts above $250,000; other states charge annual report fees. See LLC annual reports.
• Gross receipts taxes: a few states, such as Washington (B&O tax) and Ohio (CAT, with a large exclusion), tax revenue rather than profit.
• Pass-through entity taxes: many states let LLCs elect to pay state income tax at the entity level, which can work around the federal SALT deduction cap.

How to choose your LLC tax classification: step by step

1. Estimate annual profit realistically for the next two to three years.
2. Decide how much you will distribute versus reinvest.
3. Research a reasonable salary for your role and region if considering S corp status.
4. Price the admin. Payroll service, extra returns, state fees.
5. Model all options with a tax professional, including state taxes.
6. File the election on time. Form 2553 for S corp, generally within 2 months and 15 days of the start of the tax year it takes effect; Form 8832 for C corp.
7. Review annually. The best option changes as profit grows.

How do LLC owners pay themselves, and how is it taxed?

How you take money out depends on the tax classification, and it is a common source of confusion:

Classification	How the owner is paid	Tax effect of the payment itself
Disregarded or partnership	Owner's draws (or guaranteed payments to partners)	Draws are not taxed separately; you are taxed on profit whether drawn or not
S corporation	Salary through payroll, plus distributions	Salary has withholding and FICA; distributions are generally not subject to payroll tax
C corporation	Salary, bonuses and dividends	Salary is deductible to the company; dividends are taxed to the owner after corporate tax

For a default LLC, taking a draw is just moving money from the business account to your personal account. Record it as owner's equity, not as an expense, and do not issue yourself a Form 1099 or W-2. Our guide on whether an LLC gets a 1099 covers the other side: when clients must send 1099s to your LLC.

Whatever the classification, the LLC's income starts with invoices. Make sure every invoice carries the LLC's exact legal name and address, so payments and any 1099s match your return. Our free invoice generator lets you put those details on every invoice.

Common LLC tax mistakes

• Thinking the LLC itself shields income from tax. Liability protection is not tax savings.
• Electing S corp too early. At low profits, admin costs can exceed the payroll tax saved.
• Paying no salary as an S corp. A classic audit trigger.
• Mixing personal and business money. It weakens liability protection and complicates returns.
• Missing state fees. Late annual taxes can lead to penalties or loss of good standing.
• Skipping estimates. Pass-through owners must pay quarterly; see quarterly estimated taxes.

Still deciding on structure? Compare LLC vs sole proprietorship, read how to start an LLC, and learn how to invoice as an LLC so your invoices show the correct legal name.

The LLC tax rate is whatever your chosen classification makes it, so pick the one that fits your profit and plans. Whatever you choose, invoice under the LLC's legal name with our free invoice generator: it is free, requires no sign-up and downloads a PDF built in your browser.