How to Pay Yourself from an LLC

How to pay yourself from an LLC: owner's draw, guaranteed payments, and payroll, and which options trigger self-employment tax.

Knowing how to pay yourself from an LLC is one of the most confusing parts of running your own business. The short answer is that it depends on how your LLC is taxed. In a default, pass-through LLC you take money as an owner's draw. In an S-corp you pay yourself a reasonable salary. Each method affects your taxes differently, so it pays to understand the options before you cut yourself a check.

How to Pay Yourself: The Owner's Draw

If your LLC is taxed as a sole proprietorship (single member) or a partnership (multiple members), you take money out as an owner's draw. A draw is simply a transfer of cash from the business to you. You do not withhold payroll taxes from it, and you are not an employee of your own company. Instead, you report your share of the LLC's profit on your personal tax return and pay self-employment tax on it. Draws do not change how much you owe; you are taxed on your share of profit whether you take the money out or leave it in the business.

Guaranteed Payments for Members

In a multi-member LLC, members can receive guaranteed payments. These are payments for services rendered to the partnership, paid without regard to whether the business made a profit. They behave a lot like a salary: the LLC can deduct them, and you report them as income subject to self-employment tax. Guaranteed payments are useful when members want steady compensation that is not tied to business results. They are still treated as self-employment income, not as W-2 wages.

Pay Yourself a Salary in an S-Corp

If your LLC elects S-corp status, the rules change. As an owner-employee you must pay yourself a reasonable salary and run it through payroll with W-2 wages and payroll taxes withheld. The upside is that only your salary is subject to payroll and self-employment tax; the rest of your profit passes through without that tax. That is the main reason owners choose an LLC vs S-corp structure. The catch is that the salary must be reasonable for the work you do, and you must actually run payroll. See our LLC vs S-corp comparison for the full tradeoff.

Self-Employment Tax Implications

The biggest tax difference between a draw and a salary is self-employment tax. On draws and guaranteed payments you pay both the employee and employer share of Social Security and Medicare, roughly 15.3% on your net earnings. In an S-corp, only your W-2 salary triggers those taxes, which can save you money if you keep your salary reasonable. That saving is why many profitable LLCs elect S-corp status. Whatever path you choose, keep your business and personal money in separate accounts. Review our LLC taxes and business bank account pages to stay organized.

Track Draws and Keep Records

However you take money out, document it. Record each draw, guaranteed payment, or salary transfer in your books so your accountant can match it to your tax return. Note the date, amount, and which member received it. For payroll, keep pay stubs and tax deposit records. Clean documentation makes tax time easier and protects you if the IRS ever asks how you compensated yourself. If you are unsure which method fits your business, a CPA can help you weigh the tradeoffs based on your actual profit and goals.

Frequently Asked Questions

What is the difference between an owner's draw and a salary?

An owner's draw is a transfer of profit from the LLC to you, and it is not subject to payroll withholding. You pay self-employment tax on your share of the business's net earnings, whether or not you take the money out. A salary, by contrast, is paid through a formal payroll process with W-2 wages and payroll taxes withheld, and it is required if your LLC elects S-corp status. The draw is simpler and works for default LLCs, while a salary adds payroll costs but can reduce self-employment tax on the portion of profit above your salary. Which one you use depends on how your LLC is taxed and how much profit you generate.

Do I pay self-employment tax on an owner's draw?

Yes. In a default LLC, you pay self-employment tax on your share of the business's net earnings, regardless of whether you take the money out as a draw or leave it in the company. The draw itself is not a separate taxable event; your profit is what triggers the tax. That means you owe the same amount whether you transfer the cash to your personal account or keep it in the business. Self-employment tax covers both the employee and employer share of Social Security and Medicare, which is roughly 15.3% on your net earnings. You report this on your personal tax return along with your income tax.

Can I just pay myself whenever I want?

In a default LLC, yes. You can take draws at any time, as long as your operating agreement allows it and you leave enough cash in the business to cover expenses and taxes. There is no set schedule or minimum amount. In an S-corp, the rules are different: you must pay yourself a reasonable salary on a regular schedule and run it through payroll, with taxes withheld from each paycheck. The IRS expects S-corp owners to take a salary that reflects the work they actually do, rather than avoiding payroll tax by taking everything as distributions. If you are unsure what your agreement allows, review it before you start taking money out.

Should my LLC elect S-corp status to save on self-employment tax?

It can be worth it, because in an S-corp only your reasonable salary is subject to payroll and self-employment tax, while the remaining profit passes through without that tax. That can produce meaningful savings when your profit is well above the cost of a reasonable salary. The tradeoff is added complexity: you must run payroll, file additional returns, and pay yourself a defensible salary. At lower profit levels, the savings may not cover the extra costs. The right answer depends on your specific numbers, so it is worth running the math or checking with a CPA before you file Form 2553.