My LLC clients often ask me “How do I get paid by my business?” The IRS states that LLC members are not employees, they are self-employed.
They are not eligible to be paid as employees and issued W-2 forms at year end. Members that draw salaries must do so without tax withholding and are personally responsible for all taxes. Member salaries are reported annually on form K-1 as “Guaranteed Payments to Partners”.
Typically, members draw non-payroll salary checks without withholding taxes and then personally pay quarterly federal and state estimated tax payments. Some members find this process inconvenient, costly (paying the accountant to calculate quarterly payments) and unsettling compared to withholding and remitting taxes every week through the payroll system.
At the end of the year, the income tax result is similar and some LLC members have chosen to pay themselves as employees through the payroll system. However, we strongly recommend that you do not do this for the following reasons:
While the convenience of an automatic weekly paycheck with weekly withholding cannot be maintained, here are some ideas to make this process easier for LLC members:
Alternatively, you could simply write company checks to the members and employ the same splitting technique, with each member depositing one check to a personal checking account and another to a personal savings account.
This article should get you started on the right path. For detailed information or if you have questions, please feel free to contact us, we’re always willing to help.
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Robert W. Morris & Company, PC
19 E Main St, PO Box 68
New Bloomfield, PA 17068