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3 Replies Latest reply: May 28, 2009 10:31 PM by Santa Fe CPA RSS

Paying Social Security as a Single Entity LLC

Mkitchen Newbie
Currently Being Moderated
I am a single entity LLC. I want to start paying myself as an employee so I can begin to pay into Social Security. I have a few questions:

1. Can I legally pay myself as an employee?
2. Will I have to pay double social security (i think it is called Bridging)?
3. If this is going to be too costly what are my alternatives?
4. Is there another way to pay into Social Security rather than the way I am doing it?

Thank you
  • Re: Paying Social Security as a Single Entity LLC
    Santa Fe CPA Novice
    Currently Being Moderated
    Hello Mkitchen,

    Taking your questions one at atime, here goes:

    1. As a single member LLC you are not an employee. You will report your income, as the net income of the company, on the Schedule C of your personal 1040. Therefore you do not collect a salary or wages.

    2. You will pay both sides of the Social Security and Medicare taxes as Self-Employment tax. You do get a slight benefit at the adjusted gross income level such that the effective SS/MC tax rate is about 13.2%.

    3. An alternative method would be to convert the LLC to an S-Corporation. You would then become and officer/employee of the corproration. The employee would pay 7.65% of salary and the corporation the other 7.65% thus the corporation recognizes the total tax as gross wages and payroll tax expense. (Doon't forget Federal and State Unemplloyment taxes. Any net income at the end of teh year is then passed through to you and taxed at only ordinary income tax rates.

    4. There are only 2 ways to pay into the social security/medicare system; 1 as "self employed person, or 2, a W-2 wage earner

    Unearned income is not taxable for social security purposes.

    Good Luck on your decision.
    • Re: Paying Social Security as a Single Entity LLC
      natuning Newbie
      Currently Being Moderated
      Hi Santa Fe CPA.

      So in the situation number 3 that you describe, what happens to Fed WithHolding? Is there any for the LLC or the owner/single member? If there is none, I guess it's because the owner/single member's income from the business gets taxed on the personal return, correct?

      Thanks.
      • Re: Paying Social Security as a Single Entity LLC
        Santa Fe CPA Novice
        Currently Being Moderated
        Hello Natuning,

        You assume correctly. There is no Federal Income Tax Withheld in the case of a proprietorship or LLC as these persons report all applicable taxes on their personal 1040 Schedule C. Estimated total taxes are deposited quarterly using form 1040-ES, Jan 15, Apr 15, Jun 15, and Sept 15.

        You should make frequent estimates of you Self-Employment or LLC net income so that you are able to stay current on your deposits to avoid penalties and interest. A cash flow budget is most helpful.

        Don't hesitate to contact me should you need additional assistance.

        Good luck going forward.

        Richard G. Robinson, CPA.

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