How Your LLC Will Be Taxed
In this guide, we’ll cover the main business taxes required in Connecticut, including sales, self-employment and federal taxes. LLC profits aren’t taxed at the business level like C Corporations. Instead, taxes are as follows:
Items 1, 2 and 3 fall under pass-through taxation for any LLC owners, managers or members who receive profits from the business. Profits are reported on federal and state personal tax returns.
Incfile provides a complete Business Tax Filing service.
State Taxes for LLCs
You'll need to pay two main types of tax to the Pennsylvania Department of Revenue: income and sales.
Pennsylvania Income Tax
As a business owner, you’ll need to pay Pennsylvania income tax on any money you pay to yourself. These earnings flow through to your personal tax return. You’ll be taxed at Pennsylvania's standard rates, and you’ll also get to apply regular allowances and deductions.
Any salaried employees will also need to pay state tax on their income.
The Pennsylvania income tax rate is 3.07 percent of net income.
Pennsylvania Sales Tax
If you sell physical products or certain types of services, you may need to collect sales tax and then pay it to the state's Department of Revenue. Sales tax is collected at the point of purchase and varies depending on the region, county or city where your business is located.
The Pennsylvania sales tax rate is 6 percent. Per state law, a 1 percent local tax is added to purchases made in Allegheny County, and a 2 percent local tax is added to purchases made in Philadelphia.
Most states don’t levy sales tax on goods that are considered necessities, such as food, medications, clothing or gas. To determine how much you may need to pay, use our sales tax calculator. Also check with your accountant and the Department of Revenue to confirm whether your business will be required to collect Pennsylvania sales tax, and to ensure you pay the correct amount.
Pennsylvania Use Tax
If you purchase physical products outside the state for use in Pennsylvania, you may need to pay use tax. For example, if you buy furniture for your Pennsylvania business from a company in a state that doesn't have a sales tax, you'll be responsible for paying the PA use tax.
The current PA use tax rate is 4.5 percent, and local municipalities may add their own use tax in addition to the state's rate. The Pennsylvania use tax is paid directly to the Pennsylvania Department of Revenue.
Pennsylvania Franchise Tax
Unlike some other states, there is no PA franchise tax.
Federal Taxes for LLCs
As the owner of an LLC, you must pay self-employment tax and federal income tax, both of which are levied as “pass-through taxation."
Federal taxes can be complicated, so speak to your accountant or professional tax preparer to ensure that your Pennsylvania LLC is paying the correct amount.
Federal Self-Employment Tax
All members or managers who take profits out of the LLC must pay self-employment tax. This tax is administered by the Federal Insurance Contributions Act (FICA), and covers Social Security, Medicare and other benefits. The current self-employment tax rate is 15.3 percent.
You’ll be able to deduct some of your business expenses from your income when calculating how much self-employment tax you owe.
Pay Less Self-Employment Tax by Treating Your LLC as an S Corporation
The Internal Revenue Service allows an LLC to be treated as an S Corporation for tax purposes, provided your business meets certain requirements. This can help you reduce the amount of self-employment tax you pay by allowing you to declare some of your income as salary and other income as distributions or withdrawals.
You do this by filing Form 2553, also known as an S Corp Election form, with the IRS. Incfile can also file the form for you. Use our S Corp Tax Calculator to get an idea of how much money you could save with this election.
Consult with your accountant or tax advisor for more information on reducing your LLC self-employment tax through an S Corporation tax election.
We can file the paperwork with the IRS on your behalf.
Federal Income Tax
You must also pay regular federal income tax on any earnings you take out of your LLC. The amount of income tax you pay depends on your earnings, current income tax bracket, deductions and filing status.
You only pay federal income tax on profits you take out of the business, less certain deductions and allowances. This includes your tax-free amount, plus business expenses and other deductions for areas such as healthcare and some retirement plans.
Speak to your accountant for more information.
Employee and Employer Taxes
If you pay employees, there are some slightly different tax implications. Speak to your accountant to get clear guidance for your unique situation.
Employees May Need to File Tax Returns
Regardless of whether you withhold federal and state income tax, your employees may need to file their own tax returns.
Employee Insurance and Other Requirements
You may also need to pay insurance for any employees, such as employee compensation insurance or unemployment tax.
Other Taxes and Duties
Depending on your industry, you may be liable for certain other taxes and duties. For example, if you sell gasoline, you may need to pay a tax on any fuel you sell. Likewise, if you import or export goods, you may need to pay certain duties.
Speak to your accountant about any other taxes or duties you may need to withhold or pay.
Most LLCs must pay estimated taxes throughout the year, depending on the amount of profit and income you expect to make. The most common types of estimated tax are:
Most LLCs will pay estimated taxes on a quarterly basis. Learn more on the IRS website, and speak to your accountant for more information.
FAQs on Pennsylvania Business Taxes
Yes. Pennsylvania does have a sales tax, which varies among certain cities and counties. You can find more information above.
Yes. Pennsylvania does have a state income tax. You can find more information above.
No. Unlike some other states, Pennsylvania does not have a franchise tax.
Yes. In most cases, you must pay estimated taxes to the state and federal governments. You can find more information above.