USA Salaries in LLC vs S.Corp

[ConqueringBeast]

Why can owners of an LLC not collect Salaries but the owners of an S. Corp can collect salaries from their business?

 

[Marshall]

Owners of a limited liability company are treated as partners under Federal tax law (unless the LLC elects to be treated as a corporation or an S Corp). The Internal Revenue Code provides that partners are taxed on their allocable share of partnership income. Payments to a partner are therefore treated as distributions, not salary.See: LLC Electing S Corp Treatment

There is a type of payment that bears some similarity to a salary, called a "guaranteed payment". A guaranteed payment is a payment that the LLC makes to one or more members that is not based on the profitability of the LLC. Like salaries, guaranteed payments are deductible by the LLC as business expenses and the net income of the LLC is reduced by that amount.

Unlike salaries, however, guaranteed payments aren't subject to income tax and FICA tax withholding, Instead, guaranteed payments are subject to estimated income taxes and self-employment taxes, just like other partnership income.