How Is a PLLC Taxed? Tax Rules for Single and Multi-Member PLLCs
Understand how PLLCs are taxed, including default classifications, election options, and self-employment tax considerations for single and multi-member entities.
A Professional Limited Liability Company (PLLC) is a business structure designed for licensed professionals such as doctors, lawyers, and accountants. It provides liability protection similar to an LLC, but its tax treatment depends on the number of members and any elections made with the IRS. Understanding these tax rules is essential for managing obligations and optimizing tax efficiency.
Taxation varies based on whether the PLLC has one or multiple members, and owners may have options to change how their income is taxed. Self-employment taxes and filing requirements also impact overall tax liability.
Single-Member Disregarded Entity
A single-member PLLC is automatically classified as a disregarded entity for federal tax purposes. The IRS does not recognize it as a separate tax-paying entity, so all income, deductions, and credits flow directly to the owner’s personal tax return. Instead of filing a separate business return, the owner reports business activity on Schedule C of Form 1040, similar to a sole proprietorship.
Since the PLLC’s income is treated as personal earnings, the owner is responsible for both income tax and self-employment tax. The self-employment tax rate in 2024 is 15.3%, covering Social Security (12.4% on earnings up to $168,600) and Medicare (2.9% on all earnings). An additional 0.9% Medicare surtax applies to income exceeding $200,000 for single filers or $250,000 for married couples filing jointly. These taxes are calculated on net earnings after deducting business expenses.
Owners can deduct ordinary and necessary business expenses, such as office rent, professional liability insurance, and continuing education costs, to reduce taxable income. They may also qualify for the Qualified Business Income (QBI) deduction under Section 199A, which allows a deduction of up to 20% of net business income, subject to income thresholds and limitations.
Multi-Member Partnership Rules
A PLLC with more than one owner is automatically classified as a partnership for federal tax purposes unless it elects to be taxed as a corporation. The business itself does not pay income tax; instead, profits and losses pass through to individual members, who report their share on their personal tax returns. Each member receives a Schedule K-1 detailing their portion of the PLLC’s income, deductions, and credits.
Profit and loss allocation follows the terms outlined in the operating agreement. If no specific provisions exist, distributions default to ownership percentages. Unlike corporations, PLLCs taxed as partnerships can structure allocations flexibly, provided they meet the IRS’s “substantial economic effect” test, ensuring tax benefits align with actual economic arrangements.
Members are considered self-employed rather than employees and must make estimated quarterly tax payments. These payments are due on April 15, June 15, September 15, and January 15 of the following year. Failing to make sufficient estimated payments can result in penalties based on the lesser of 90% of the current year’s tax liability or 100% of the prior year’s tax.
S Corporation Election
Electing S corporation status allows a PLLC to modify how its income is taxed, potentially reducing the overall tax burden. The business retains pass-through taxation but can classify a portion of earnings as salary while distributing the rest as dividends. Salary payments are subject to payroll taxes, whereas dividend distributions are not.
To qualify, the PLLC must meet IRS requirements, including having no more than 100 shareholders, issuing only one class of stock, and ensuring all members are U.S. citizens or resident aliens. The election is made by filing Form 2553 with the IRS, typically by March 15 to take effect for the current tax year. If the deadline is missed, late election relief may be available under Revenue Procedure 2013-30 if reasonable cause is demonstrated.
Once approved, owners who work in the business must be paid a “reasonable salary,” which is subject to Social Security and Medicare taxes. The IRS scrutinizes this classification to prevent abuse, often comparing salaries within the same industry and geographic region. If an owner underpays themselves to avoid payroll taxes, the IRS can reclassify distributions as wages, triggering back taxes and penalties.
Self-Employment Obligations
PLLC owners must handle tax responsibilities beyond income reporting, particularly self-employment contributions and estimated tax payments. Unlike traditional employees who have payroll taxes withheld automatically, self-employed individuals must calculate and remit these amounts themselves.
Self-employment taxes cover both the employer and employee portions of Social Security and Medicare. The IRS allows a deduction of 50% of the total self-employment tax paid, reducing taxable income for federal purposes. This deduction is claimed as an adjustment on Form 1040. Some states also offer credits or deductions, though eligibility varies.
Filing Requirements
Tax compliance for a PLLC depends on its classification and any elections made with the IRS. Each structure has distinct filing obligations and deadlines.
Single-member PLLCs, treated as disregarded entities, report business income and expenses on Schedule C, filed with the owner’s personal Form 1040. If the business has employees, additional filings such as Form 941 for payroll taxes and Form W-2 for employee wages may be required. Multi-member PLLCs, classified as partnerships, must file Form 1065, which reports the entity’s total income and expenses. Each member then receives a Schedule K-1, detailing their share of profits or losses for inclusion on their personal return. S corporation PLLCs file Form 1120-S, and owners report wages on a W-2 while distributions appear on a Schedule K-1.
Failure to meet filing deadlines can result in penalties. For partnerships and S corporations, the late filing penalty is $220 per month per member, up to 12 months. Individual owners who fail to report income from a PLLC may face accuracy-related penalties of 20% of the underpaid tax. Estimated tax payments, required for self-employed individuals, must be made quarterly using Form 1040-ES to avoid underpayment penalties. Some states impose additional business taxes or require separate filings.