LLC taxes with a W-2 job: why your side income is taxed at a higher rate
You started an LLC on the side, and the tax on it looks bigger than you expected. Here's exactly why, in plain numbers, and how much to set aside.
Your W-2 salary is already taxed through your paycheck. Your LLC profit is taxed on top of it: your salary has already used up the standard deduction and the lowest brackets, so every LLC dollar is taxed at your highest rate. On top of that you pay 15.3% self-employment tax, because there's no employer paying half. On $24,000 of LLC profit a year, a single person with no other job owes about 16% in federal tax. With a $60,000 W-2 job, it's about 28%.
Your paycheck vs. your LLC
| W-2 paycheck | LLC profit | |
|---|---|---|
| Income tax | Withheld from every paycheck | Nothing withheld: you set it aside |
| Social Security + Medicare | 7.65% (your employer pays the other 7.65%) | 15.3% of 92.35% of profit: you pay both halves |
| When it's paid | Automatically, every payday | You pay quarterly estimates to the IRS and your state |
Why the same dollar costs more in your LLC
Income tax works in brackets: the first slice of income is taxed at 10%, the next at 12%, then 22%, and so on. Your W-2 salary goes in first. It uses your $16,100 standard deduction (single, 2026) and fills the low brackets. Your LLC profit gets added after that, so it starts where your salary left off.
Take $24,000 a year of LLC profit ($2,000 a month):
- No W-2 job: the standard deduction covers part of it and the rest is taxed at 10% or less. Total federal + self-employment tax: $3,887 (16%).
- $60,000 W-2 job: the LLC profit is taxed at 22%. Total: $6,667 (28%).
- $120,000 W-2 job: taxed at 24%. Total: $7,638 (32%).
The self-employment tax is the same in all three. The difference is the bracket.
| Yearly LLC profit | No W-2 job | $60K W-2 job | $120K W-2 job |
|---|---|---|---|
| $12,000 a year ($1,000/mo) | $1,696 (14%) | $3,008 (25%) | $3,801 (32%) |
| $24,000 a year ($2,000/mo) | $3,887 (16%) | $6,667 (28%) | $7,638 (32%) |
| $48,000 a year ($4,000/mo) | $9,271 (19%) | $13,983 (29%) | $15,311 (32%) |
Federal income tax + self-employment tax on the LLC profit, single filer, 2026, standard deduction. Add your state's income tax on top.
If your spouse has a W-2 job too
On a joint return, both salaries fill the brackets before your LLC profit does. A couple each earning $60,000 would owe about $6,017 (25%) on $24,000 of LLC profit, with the profit taxed at 22%. Married brackets are about twice as wide as single ones, so the rate depends on your combined salaries.
Don't forget your state
Most states tax income the same way: your LLC profit is added on top of your salary. Nine states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) don't tax earned income. In the others, add roughly 3% to 10% of your profit on top of the numbers above.
How to handle it
- Each month, set aside your tax share of the LLC profit in a separate savings account before you pay yourself.
- Pay it to the IRS (and your state) as quarterly estimated taxes. For 2026: April 15, 2026, June 15, 2026, September 15, 2026, January 15, 2027.
- Pay yourself what's left after business expenses and that tax set-aside.
Run your own numbers.
Your W-2, your state, this month's LLC income. Free, no account.
Open the calculatorQuestions
Is my LLC income taxed twice because I also have a W-2 job?
No. Each dollar is taxed once. Your W-2 salary is taxed through paycheck withholding. Your LLC profit is added on top of it, so it's taxed at your highest bracket, plus 15.3% self-employment tax. That's why it can feel like double taxation.
Does my W-2 withholding cover my LLC taxes?
No. Your employer only withholds tax based on your salary. Nothing is withheld from LLC income, so you need to set that money aside yourself and pay it to the IRS and your state as quarterly estimated taxes.
Do I pay self-employment tax even though I already pay Social Security at my job?
Yes, on your LLC profit. The only break is the Social Security cap: the 12.4% part stops once your W-2 salary plus LLC earnings pass $184,500 for 2026. The 2.9% Medicare part has no cap.
My spouse has a W-2 job and I have an LLC. Does their income matter?
Yes, if you file jointly. Your spouse's salary fills the lower brackets first, so your LLC profit lands in a higher bracket than it would on its own. It doesn't change your self-employment tax.
Do I need to make quarterly estimated payments for a side business?
Usually yes, if you'll owe $1,000 or more for the year beyond what's withheld from your paychecks. With a W-2 job, most side businesses cross that line with a few thousand dollars of profit.