The Tax

• For self-employed individuals, you must forward 10.4 percent of your income, over and above federal income taxes, to the IRS to cover the Social Security tax, more formally known as OASDI, or Old-Age, Survivivors and Disability Income. This rate is current as of 2011. You must pay this percentage of up to $106,800 of your income each year. Above that amount, there is no further Social Security tax. You must also pay a Medicare tax, also called Hospital Insurance, of 2.9 percent of your income, with no earnings ceiling. When you take exemptions and credits into account, you will typically have to pay self-employment tax on 92.35 percent of your net earnings from self employment.
  
  

The LLC Structure

• Limited liability companies, or LLCs, generally allow their members to elect whether to be treated as a corporation for the purposes of filing their tax return, or as a partnership. Single-member LLC members, however --- those with only one owner-member, must treat their income as self-employment income for the purposes of calculating self-employment tax. Multiple member LLCs, however, can elect to be treated as corporations. When this is done, you may elect to treat members as owner-employees. The LLC in this case pays taxes at its level as a corporation. The corporation withholds the employer portion of the self employment tax. In either case, though, the total contribution to the OASDI and Medicare is the same.
  
  

When You Must Pay

• You must pay self-employment tax if you had net income from self-employment --- including income you took from your LLC --- of $400 or more during the year. If you are an owner-employee of a multi-member LLC, however, and you are treating your LLC as a corporation for federal income tax purposes, you and the LLC combined must pay self-employment taxes on all amounts received, though subject to the $106,800 cap for OASDI.
  
  

How to File

• If you took money out of your LLC that is countable as self-employment income in the amount of $400 or more, you must file an IRS Schedule E, Self-Employment Tax, with your federal income tax return. If you are a member-employee, your company must file a Form 941 with the IRS each quarter, withhold your personal share of self-employment tax from your pay, and forward that plus the employer's portion of the tax to the IRS every three months.