- A single-member LLC is by default a disregarded entity — no separate federal income tax return; activity flows onto the owner's Schedule C.
- It is still subject to self-employment tax on net earnings — 15.3% for 2026, the same as a sole proprietor.
- Disregarded is a federal income tax concept only. The LLC is generally still a separate entity for legal liability, state filings, and employment taxes if it has employees.
- An EIN is commonly obtained anyway — for business banking, for hiring, and to avoid putting a Social Security number on W-9s.
- The default can be changed by election — to S-Corp via Form 2553, or C-Corp via Form 8832 — which is where the tax planning actually happens.
What "disregarded" means in practice
For federal income tax purposes, the IRS treats a single-member LLC that has made no election as if it were not there. There is no separate business income tax return. The business's income and expenses are reported on the owner's personal return, generally on Schedule C.
The word is unfortunate, because it suggests the LLC is meaningless. It is not. The entity remains real for legal liability, for state registration and fees, for contracts, and — if it has employees — for employment tax purposes, where it is generally treated as a separate entity in its own name.
So the accurate summary is narrow: disregarded for federal income tax, respected for most other purposes.
Self-employment tax still applies
This is the point that surprises people most. Because the LLC is disregarded, its profit is treated as the owner's self-employment earnings — which means the full 15.3% self-employment tax for 2026: 12.4% Social Security up to the $184,500 wage base, plus 2.9% Medicare with no ceiling, plus an additional 0.9% Medicare above $200,000 single or $250,000 married filing jointly.
Taking money out of the LLC is not a taxable event in itself and is not payroll. An owner's draw is generally just a transfer; the tax was determined by the profit, not by the withdrawal. Owners frequently assume that leaving money in the business account defers the tax. It generally does not.
One offset applies: roughly half of self-employment tax is generally deductible in computing adjusted gross income.
The EIN question
A single-member LLC with no employees and no excise tax obligations can often use the owner's Social Security number for federal income tax purposes. Most owners get an EIN regardless, for reasons that are practical rather than required:
- Business bank accounts generally require one.
- It avoids putting a Social Security number on every W-9 sent to affiliate networks, brands, and platforms — which is a meaningful privacy consideration for anyone with a public profile.
- Hiring employees requires one.
- An S-Corp election later will require one.
EINs are obtained directly from the IRS at no cost. Services that charge to file the application are selling convenience rather than access.
When the default stops fitting
Default treatment works well while profit is modest. It gets expensive as profit grows, because every dollar of net profit is exposed to self-employment tax with no mechanism to separate a return on the business from compensation for labour.
That is what the S-Corp election addresses. Filing Form 2553 changes the tax classification — not the legal entity — so profit can be split into a reasonable salary subject to payroll taxes and distributions generally not subject to self-employment tax. The commonly cited trigger point is around $80,000 of net self-employment income.
A C-Corp election via Form 8832 is also possible but is rarely the answer for an owner-operated online business, since it introduces two layers of tax on distributed profit. It generally comes up only where outside investment or retained earnings at corporate rates are genuinely in play.
Frequently Asked Questions
What does disregarded entity mean for a single-member LLC?
It means that for federal income tax purposes the IRS looks through the LLC to its owner. There is no separate business income tax return; the business activity is reported on the owner's personal return, generally on Schedule C. The term applies only to federal income tax — the LLC is generally still respected for legal liability, state registration, contracts, and employment taxes if it has employees.
Does a single-member LLC file its own tax return?
Generally not for federal income tax under the default classification. The activity is reported on the owner's personal return via Schedule C, with self-employment tax computed on Schedule SE. States can differ — some require a separate LLC filing, an annual report, or a franchise tax return regardless of federal treatment. If the LLC elects S-Corp status, it then files its own Form 1120-S.
Do I pay self-employment tax on a single-member LLC?
Typically yes. Because the LLC is disregarded, its net profit is treated as the owner's self-employment earnings and is subject to the 15.3% self-employment tax for 2026 — 12.4% Social Security up to the $184,500 wage base plus 2.9% Medicare with no cap, and an additional 0.9% above $200,000 single or $250,000 MFJ. Roughly half of that is generally deductible in computing adjusted gross income.
Is taking money out of my LLC a taxable event?
Generally no, under default single-member treatment. An owner's draw is typically just a transfer of funds rather than a separate taxable event, because the tax was already determined by the business's profit. This also means leaving money in the business bank account does not usually defer the tax — the profit is taxable whether or not it was withdrawn, which is a common and expensive misunderstanding.
Does a single-member LLC need an EIN?
Not always for federal income tax, if there are no employees and no excise tax obligations — the owner's Social Security number can often be used. Most owners obtain one anyway: business banking generally requires it, hiring requires it, an S-Corp election later requires it, and it avoids putting a Social Security number on every W-9 sent to networks and brands. EINs are free directly from the IRS.
When should a single-member LLC elect S-Corp status?
Commonly discussed around $80,000 of net self-employment income, though the honest answer depends on the numbers. Default treatment exposes all net profit to self-employment tax; the election allows a split between reasonable salary and distributions, with distributions generally outside self-employment tax. Against that sit payroll processing, a separate Form 1120-S return, and heavier bookkeeping. A CPA typically models both before the election is filed.
Authoritative Source
The IRS treats a single-member LLC as disregarded by default, which is the source of most of the confusion here. The IRS publishes the governing rules on its Single Member Limited Liability Companies page. Figures and thresholds change between tax years, so it is generally worth confirming current numbers there or with a CPA rather than relying on any article, including this one.
Model whether the default is still the right classification
Default treatment is simple and cheap while profit is modest, and increasingly expensive as it grows. The calculator shows what an S-Corp election would change at your income. A TraderTax-matched CPA can confirm the classification and the state filing that goes with it. Every situation varies.
Get Matched With a CPA Who Handles This →Disclaimer: Content is for informational purposes only and is not personalized tax, legal, or accounting advice. TraderTax is a platform that matches clients with independent tax professionals; it is not a tax firm. Tax outcomes vary with facts and circumstances — every situation varies. Confirm anything here with a qualified tax professional before acting on it.