In general, the same person cannot be considered both a “member” (i.e. owner) and an “employee” of a limited liability company (LLC). This means that a single-member LLC (SMLLC) cannot technically treat its sole member as an employee. Instead, SMLLC members typically receive profits.
What’s the difference between profits and wages?
A traditional employee earns a wage, which is a fixed sum tied to the amount of time that worker actually works. A profit, on the other hand, is a fluctuating amount based on the overall financial gains of the business. LLC members usually earn a certain percent of their business’s profits once salaries (if applicable) and other costs have been distributed.
Do LLC members receive a W-2?
Not usually. However, if a multi-member LLC elects to be taxed as a corporation, it is technically an independent legal entity and may treat its members (or shareholders) as salaried employees. Any shareholder who also receives wages will have to fill-out a W-2 form.
Can an SMLLC issue its owner a W-2?
No. Since a single person cannot be considered both a “member” and an “employee” of the same company, the owner of an SMLLC cannot be paid as an employee, and therefore cannot receive a W-2 form. An SMLLC owner’s income is usually reported as self-employment income from a sole proprietorship.