CAN I BE ON PAYROLL IF I’M AN LLC FILING AS AN LLC?
Despite all your hard work, there’s something you need to know about an LLC having employees and being on payroll.
Not all LLCs are created equal! And depending on the filing status of your LLC, will determine how/if you should have payroll.
And you need to decide which one you need to be taxed as. So let me break down the different filing statuses of an LLC:
Sole proprietorship (single-member LLC) – cannot have employees, only members.
Partnership (multi-member LLC) – same as above.
Corporation (single or multi-member LLC) – these can have employees.
Sole proprietorship and partnership LLCs are pass-through business entities and the business members will benefit from pass-through taxation: (taxation that enables the profits and losses to be passed on to the members.)
With me still?
Once profits/losses are passed through, they must be reported to the IRS in the following ways:
For a single-member LLC, it goes on the owner’s personal federal tax returns on Schedule C to Tax Income Form 1040.
For a partnership LLC, it means filing an information return on Form 1065 and then a Schedule K-1 that shows the share of the profit/loss of the partnership for each partner. This K-1 is filed with each partner’s individual return and shown on Form 1040.
Since these two filing statuses can’t have employees, there are no wages for LLC members and owners and no contributions for health insurance systems or social security that are withheld.
So basically, you can’t be on payroll in this type of LLC and you must pay the so-called “self-employment taxes” on your share of profits directly to an IRS.
However, if you decide to file Form 8832, you can request the LLC be treated as a corporation. That way you can be treated as an employee, be on payroll and receive W-2 income.
