How To Pay Yourself From An LLC (2024 Guide)

Here are four main ways you can receive payments from your LLC.

1. Pay Yourself as a W-2 Employee

For many LLC owners, the most advantageous way to receive payment is to treat yourself as an employee.

In this arrangement, you—and other owners who actively work in the business—are employees/owners, and you receive paychecks just as you would as an employee of someone else’s business.

As long as your business brings in revenue consistent enough to cover your salary or wages, this can be a way to set yourself up with predictable pay for your household. According to the IRS, you have to pay yourself “reasonable compensation.” The IRS doesn’t explicitly set an amount; it just needs to be a typical amount someone doing your work gets paid.

If you pay yourself this way, you can elect to be treated as an S-corporation for tax purposes. The advantage is that you only pay FICA, Medicare and Social Security taxes (colloquially called “self-employment tax”) on the salary or wages you pay yourself, not on all business profits. That’s a tax savings of around 15% on some of your income.

2. Earn Profit Distributions

Any LLC member (a.k.a. shareholder) can be paid through profit distributions or owner’s draws. This means passing business profits on to owners.

The process can be more complex if you’re part of a multimember LLC, but for a single-member LLC, this pretty much looks similar to the way you’d pay yourself as a freelancer. Money comes in, and you distribute it to your personal bank account.

For multimember LLCs, your operating agreement lays out how profits will be allocated and at what frequency.

The drawback of using this as your main payment method is that you’ll pay self-employment taxes on all the money that comes into your business, instead of on only a designated salary. If your business is your main source of income, you might instead pay yourself a salary as an employee and take an owner’s draw on additional profits.

3. Pay Yourself as a 1099 Independent Contractor

You can technically pay yourself as an independent contractor instead of an employee of the business—but this isn’t always advantageous for most small businesses.

Paying yourself as a contractor means you forgo taking payroll taxes out of your paycheck, and your personal account receives your full pay as with any other contractor. You typically don’t save money this way, though. Instead of paying payroll taxes from your paycheck, you pay that same amount as self-employment tax when you pay quarterly taxes as an independent contractor.

This approach could also be complex because you have to claim taxes as both the LLC owner and for your work as a contractor (as a sole proprietor or as the owner of a separate LLC). It might make sense if you’re a shareholder in an LLC that you don’t actively work for and want to provide occasional services, but it isn’t a common approach if you own and operate your LLC.

4. Keep the Money in the Business

The last option is to not give yourself a paycheck at all. You might do this if you want to put earnings back into the business instead of your pocket, or if you want to build savings within the business.

You still have to pay income taxes on any profit the business generates, even if you don’t take a paycheck or distribution. Tax authorities treat LLCs by default as pass-through entities, so those profits are included in your income for tax purposes. (The business doesn’t pay any separate tax on them.)

If you’ve elected S-corp tax treatment, be careful about using this option. Not paying yourself could pass the “reasonable compensation” test if the business isn’t generating much revenue. But you typically can’t leave money in the business to avoid paying self-employment taxes—that could cost you in fees and back taxes down the line.

Once you’ve set up a separate business entity, you can set up a business bank account, as well. This isn’t required, but it’s a big help to keep your accounting in order and protect your personal finances in case of liabilities against the business.

The money you earn for sales or services should go into the business account first. Use that to cover business expenses, and make payments into a personal account you use for personal and household expenses.

You can take money out of your business account in any form you want—e.g., cash, paper or electronic checks, ACH payments, PayPal or Venmo. However you do it, you’re responsible for applicable income and self-employment taxes on your business income.

A payroll service can significantly simplify this process. For example, you can sign up for a service such as Gusto or Wave, set yourself up as an employee or contractor, and automatically receive payments to your personal bank account via ACH. Gusto even files W-4s, W-2s, W-9s and 1099s for you and pays payroll taxes automatically. Wave does this in some states.

Bottom Line

Paying yourself from an LLC can seem complicated, but it doesn’t have to be. If the business is regularly generating revenue and you actively work in the business, you’ll most likely pay yourself a salary or wages as an employee. But you have other options to explore if your circumstances are different—if the business isn’t earning a profit or you’re a shareholder who doesn’t actively work in the company.

Payroll services can take care of a lot of the heavy lifting for you once you decide how you’ll be paid. Free payroll software is also an option if budget is a concern. No matter your circumstances, consult an accountant or tax attorney to help you choose the right approach for your business.