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If you’re self-employed or own a small business, chances are that your business either already is an LLC or could benefit from becoming one. When making that decision though, it’s not always straightforward how an LLC works and what the business structure could mean for you. LLC tax rates and rules are one of the key factors to understand in this assessment. We’ll cover how LLCs are taxed, which tax rates apply to LLCs and what tax benefits LLCs can offer.
You can also work directly with a financial advisor to help determine the best tax route for your business. That choice can also have an impact on your personal taxes.
What Is an LLC?
A limited liability company (LLC) is an organizational structure that offers protection for company owners from the liability of their company. Under an LLC, company owners have some protection if the LLC owes debts or someone files a lawsuit against it.
LLCs come with some particular rules. For one, LLC “members” are the same as owners. Most states don’t put many restrictions on who can be a member of the LLC. It can be individuals, corporations, foreign entities and other LLCs. Some types of businesses, such as banks and insurance companies, generally cannot organize as LLCs, although state rules vary. In most states, LLCs can have as little as one member and up to an unlimited number of members.
An LLC can be a partnership, sole proprietorship or corporation. This classification will influence the tax treatment of the LLC. Regulation and tax treatment of LLCs also varies from state to state.
How Are LLCs Taxed?
For most LLCs, the LLC tax rate is the same as the personal federal income tax rate. Since LLCs are business structures established by state statute, the way they’re taxed on a state level varies.
Taxation of LLCs also varies depending on the specific type of LLC:
- Single-member: If you own a single-member LLC and don’t elect a tax status, this is the default. An LLC with just one member works as a disregarded entity for tax purposes. This means you will file the income from the LLC as your income for your federal income taxes.
- Multi-member: When there are two or more members that own a stake in a domestic LLC, the default federal tax classification is generally a partnership unless the LLC elects corporate treatment. Each member reports the member’s allocated share of partnership income, deductions and credits. The partnership agreement and federal tax rules determine the allocation. It is not necessarily equal or based only on ownership percentage.
- S Corporation: With an S Corp, business income generally passes through to the shareholders. A shareholder who works for the business generally must receive reasonable compensation subject to employment taxes before the distribution of additional profits. Those distributions generally are not subject to self-employment tax. However, S corporation requirements, payroll obligations and administrative costs apply.
- C Corporation: You can also form your LLC as a C Corp. This allows you some advantages, such as the ability to issue multiple classes of stock. You’ll also be able to make more deductions than you would with an S Corp. The downside is that your LLC will no longer be treated as a pass-through entity. That means your LLC tax rate will be the corporate tax rate, and you’ll also have to pay income taxes on earnings.
LLC Tax Rate
Since most LLCs (besides those filing as C Corps) are regarded as pass-through organizations, they don’t hold tax liability themselves. This means an LLC doesn’t have a formal tax rate. Instead, the members of the LLC claim the income directly on their personal income tax forms per their federal income tax brackets.
Use our calculator to understand how tax brackets apply to your earnings.
The federal income tax brackets for the 2026 tax year (filed in 2027) are as follows:
Federal Income Tax Bracket for 2026
| Rate | Single | Married, Filing Jointly | Married, Filing Separately | Head of Household |
|---|---|---|---|---|
| 10% | $0 – $12,400 | $0 – $24,800 | $0 – $12,400 | $0 – $17,700 |
| 12% | $12,401 – $50,400 | $24,801 – $100,800 | $12,400 – $50,400 | $17,701 – $67,450 |
| 22% | $50,401 – $105,700 | $100,801 – $211,400 | $50,400 – $105,700 | $67,451 – $105,700 |
| 24% | $105,701 – $201,775 | $211,401 – $403,550 | $105,700 – $201,775 | $105,701 – $201,750 |
| 32% | $201,776 – $256,225 | $403,551 – $512,450 | $201,775 – $256,225 | $201,751 – $256,200 |
| 35% | $256,226 – $640,600 | $512,451 – $768,700 | $256,225 – $384,350 | $256,201 – $640,600 |
| 37% | $640,601+ | $768,701+ | $384,351+ | $640,601+ |
If an LLC is taxed as a C corporation, the LLC files a corporate income tax return and generally pays federal income tax at a flat 21% rate in 2026, with state taxes potentially applying as well. Distributions of corporate earnings to owners can also be taxable to the owners as dividends, creating a second level of federal income tax.
For reference, here are the long-term capital gains tax rates for 2026:
Capital Gains Tax Rate in 2026
| Tax Rate | Single Filers | Married Couples Filing Jointly | Heads of Household |
|---|---|---|---|
| 0% | $0 – $49,450 | $0 – $98,900 | $0 – $66,200 |
| 15% | $49,451 and $545,500 | $98,901 and $613,700 | $66,201 and $579,600 |
| 20% | $545,501+ | $613,701+ | $579,601+ |
Why an LLC Owner May Pay More Than Income Tax
An LLC owner’s federal tax obligation can extend beyond the amount calculated under the individual income tax brackets. How the business is classified for federal tax purposes helps determine whether its earnings are also subject to self-employment tax.
Consider a single-member LLC that is disregarded for federal income tax purposes. If its owner has $100,000 of net earnings from self-employment in 2026 and receives no wages elsewhere, the first step is to apply the 92.35% adjustment used in the self-employment tax calculation:
- $100,000 × 92.35% = $92,350
In this example, $92,350 is below the 2026 Social Security wage limit of $184,500. As a result, both components of the basic calculation apply: 12.4% for Social Security and 2.9% for Medicare.
- $92,350 × 15.3% = $14,129.55
The owner would therefore have $14,129.55 of self-employment tax in addition to any federal income tax they owe. They can generally take one-half of that amount as an adjustment when determining adjusted gross income. That adjustment affects the income-tax calculation; it does not decrease the $14,129.55 self-employment tax shown above.
Different rules can apply once earnings reach the Social Security limit. A cap applies to the 12.4% component based on the applicable wage base, taking relevant wages from other employment into account. The 2.9% Medicare component is not subject to that ceiling. Depending on filing status and earned income, the 0.9% Additional Medicare Tax may also come into play.
Tax treatment can differ for an LLC with multiple owners. When the entity is taxed as a partnership, whether a member’s distributive share enters the self-employment tax calculation depends on factors including the member’s status and the type of income involved. State or local obligations may apply separately.
Bottom Line
In most cases, an LLC does not have a single federal tax rate. The rate and type of tax depend on the LLC’s federal tax classification and the owner’s circumstances. Still, there’s some nuance in how you’re taxed depending on how your LLC files. For an LLC taxed as a partnership, for instance, members generally report their allocated shares of the business’s taxable items on their individual returns. Regardless of whether your LLC is just you or a corporation, it pays to know its tax treatment.
Tax Tips for Small Business Owners
- If you’re unsure of the best route for filing your taxes, consider working with a financial advisor well-versed in small business taxes. Finding the right financial advisor who fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- As a small business owner, you need to know how you’ll be taxed. SmartAsset’s small business tax guide can explain the basics and help you figure out your small business’s taxes.
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