A Professional Limited Liability Company is taxed the same way the IRS taxes any other LLC. Federal law ignores the “professional” label entirely and drops your firm into one of four classifications: disregarded entity, partnership, S corporation, or C corporation. The first two are the automatic defaults based on how many owners you have. The other two require an election you file with the IRS. Which classification applies determines whether your income is hit by self-employment tax, payroll tax, corporate tax, or some combination, and the dollar difference between them is often the single biggest tax decision a licensed practice makes.
Why the “Professional” in PLLC Doesn’t Change Federal Tax
The PLLC is a state-law structure. It exists so licensed professionals such as physicians, attorneys, accountants, and architects can operate through a liability-shielding entity while staying subject to their state licensing board. The shield covers business debts and the malpractice of other members; each professional stays personally liable for their own negligent acts.
Federal tax law doesn’t recognize any of that. The IRS applies its entity classification rules to a PLLC exactly as it does to a regular LLC, which is why the tax analysis below is really an LLC analysis.
Default Tax Treatment
Form a PLLC and file nothing else, and the IRS assigns a classification based on ownership count. In both defaults the firm itself pays no federal income tax; profits and losses flow through to the owners’ personal returns, and each owner owes self-employment tax on their share of net earnings.
Single-Member PLLC
A one-owner PLLC is a disregarded entity. The IRS treats the business as if it doesn’t exist separately, and you report income and expenses on Schedule C of your Form 1040, the same way a sole proprietor does.1Internal Revenue Service. About Schedule C (Form 1040) The net profit hits your return twice: once as ordinary income taxed at your marginal rate, and again as the base for self-employment tax.
Multi-Member PLLC
Two or more owners? The default is partnership status. The firm files Form 1065 as an information return and issues each member a Schedule K-1 showing their share of income, deductions, and credits.2Internal Revenue Service. About Form 1065, U.S. Return of Partnership Income Each member picks that up on their personal 1040. The partnership pays no federal income tax, but members owe self-employment tax on guaranteed payments and their distributive share of ordinary business income.
The Self-Employment Tax Problem
Self-employment tax is the pass-through owner’s version of FICA. The combined rate is 15.3%: 12.4% Social Security and 2.9% Medicare.3Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) When you’re an employee, your employer covers half. When you own the practice, you cover both halves.
The Social Security portion only applies to net earnings up to $184,500 in 2026.4Social Security Administration. Contribution and Benefit Base Earnings above that ceiling still owe the 2.9% Medicare piece, plus an additional 0.9% Medicare surtax once total earnings exceed $200,000 for single filers or $250,000 for joint filers. You can deduct the employer-equivalent half of self-employment tax as an adjustment to income, which helps but doesn’t eliminate the drag. This is the tax profitable practices are usually trying to shrink when they consider the next step.
Electing S Corporation Status
The S corporation election is the most common tax move for profitable professional firms. The PLLC stays a pass-through entity, but payroll taxes get calculated differently, and part of the owner’s income escapes the 15.3% self-employment levy. You file Form 2553 to make the election.5Internal Revenue Service. About Form 2553, Election by a Small Business Corporation
Splitting Salary and Distributions
Every owner who actively works in the practice must receive a reasonable salary reported on a W-2.6Internal Revenue Service. About Form W-2, Wage and Tax Statement That salary carries the usual FICA taxes: 6.2% Social Security and 1.45% Medicare from each side. Profit left over after salaries can be distributed as non-wage income, and those distributions are not subject to self-employment tax.
Consider a solo attorney netting $400,000 a year. Under default treatment, self-employment tax applies to the whole $400,000 (subject to the Social Security cap). Elect S corporation status, pay a $200,000 salary, and FICA applies only to the salary; the remaining $200,000 in distributions dodges the 15.3% bite. The savings run roughly $23,000 in a year, though the exact figure depends on where the salary lands relative to the Social Security wage base.
What Reasonable Compensation Means
The IRS doesn’t publish a formula. Courts have weighed the professional’s training and experience, time and effort devoted to the practice, what comparable professionals earn in similar roles, the firm’s dividend history, and compensation paid to non-owner employees.7Internal Revenue Service. Fact Sheet 2008-25, S Corporation Compensation and Medical Insurance Issues Setting the salary too low to inflate distributions is the fastest way to attract audit attention. The IRS has warned that S corporations cannot disguise wages as distributions, personal expense reimbursements, or loans.
A dermatologist running a solo PLLC who pays herself $60,000 while distributing $500,000 will have a hard time explaining that number to an auditor. The working rule practitioners use is that the salary should reflect what you’d realistically pay someone else to do the same clinical or professional work.
Health Insurance for Owner-Employees
Own more than 2% of an S corporation, and health insurance premiums the company pays on your behalf must be included in your W-2 wages in Box 1. Those premiums are not subject to Social Security, Medicare, or unemployment taxes, so long as the plan covers a class of employees rather than just the owner.8Internal Revenue Service. S Corporation Compensation and Medical Insurance Issues You then claim the self-employed health insurance deduction on your personal return, effectively deducting the premiums without payroll tax.
Filing Deadlines and Requirements
An S corporation PLLC files Form 1120-S annually, with a Schedule K-1 for each owner.9Internal Revenue Service. About Form 1120-S, U.S. Income Tax Return for an S Corporation To make the election effective for the current tax year, Form 2553 must be filed no later than two months and 15 days after the tax year begins, or at any time during the preceding tax year.10Office of the Law Revision Counsel. 26 U.S. Code 1362 – Election; Revocation; Termination For a calendar-year PLLC, that’s March 15. Miss it, and the election normally takes effect the following year unless you qualify for late-election relief. Revenue Procedure 2013-30 offers a simplified path for late filings when the delay had reasonable cause.11Internal Revenue Service. Revenue Procedure 2013-30
Who Can’t Elect
The S election carries structural limits. Your PLLC can have no more than 100 shareholders, all of whom must be U.S. citizens or resident individuals (or certain trusts and estates). Partnerships and corporations cannot be shareholders. Only one class of stock is allowed, so you can’t create ownership tiers with different economic rights.12Internal Revenue Service. S Corporations A two-person law firm won’t notice these rules. A large multi-specialty medical group with tiered profit-sharing might.
Electing C Corporation Status
A PLLC can elect to be taxed as a C corporation by filing Form 8832.13Internal Revenue Service. About Form 8832, Entity Classification Election This is the least common choice for professional firms, and for a reason: it adds a second layer of tax that pass-through structures avoid.
Double Taxation
A C corporation pays its own federal income tax on net profits at a flat 21%, filing Form 1120.14Internal Revenue Service. About Form 1120, U.S. Corporation Income Tax Return When after-tax profits are distributed to owners as dividends, the owners pay tax again on their personal returns. Qualified dividends are taxed at 0%, 15%, or 20% depending on total taxable income, but the combined effective rate on a dollar that runs the gauntlet twice still lands above what pass-through owners pay in most professional practices.
High earners take an extra hit. The 3.8% Net Investment Income Tax applies to dividends once modified AGI exceeds $200,000 (single) or $250,000 (joint).15Internal Revenue Service. Net Investment Income Tax With the corporate rate, individual dividend rate, and surtax stacked together, combined federal tax on distributed C corporation earnings can approach 40%.
Personal Service Corporation Status
A PLLC that elects C corporation status usually qualifies as a “qualified personal service corporation” because its work centers on fields like health, law, accounting, architecture, or consulting, and its stock is held by the professionals doing that work.16Office of the Law Revision Counsel. 26 U.S. Code 448 – Limitation on Use of Cash Method of Accounting One practical upside: personal service corporations are exempt from the general prohibition on the cash method of accounting, which simplifies bookkeeping for smaller practices. The trade-off is that the IRS looks hard at compensation and expense arrangements designed to zero out corporate income.
When It Might Actually Fit
C corporation status offers fully deductible fringe benefits that other structures don’t. Health insurance and group term life insurance for all employees, owners included, are deductible at the corporate level without becoming taxable to the employee. For a firm with heavy benefit costs, or one planning to retain earnings for growth instead of distributing them, the C corporation can sometimes offset the double-tax drag. It also allows multiple classes of stock and imposes no shareholder limit, giving it flexibility the S corporation lacks for firms bringing in outside investors.
The Qualified Business Income Deduction
If your PLLC is taxed as a pass-through (disregarded, partnership, or S corp), you may qualify for a 20% deduction on your share of qualified business income under Section 199A.17Office of the Law Revision Counsel. 26 U.S. Code 199A – Qualified Business Income The One Big Beautiful Bill Act made this deduction permanent in 2025, removing the original sunset. On $300,000 of pass-through income, a full deduction cuts taxable income by $60,000.
The complication: most PLLC professions fall into the “specified service trade or business” category, which covers health, law, accounting, consulting, financial services, and performing arts. For those fields, the deduction phases out above certain income thresholds. In 2026, married couples filing jointly start losing the deduction at $394,600 of taxable income and lose it entirely at $544,600. Single filers phase out between $197,300 and $272,300.18Internal Revenue Service. Instructions for Form 8995
Below the lower threshold, you claim the full 20% regardless of profession. Inside the phase-out range, you get a partial deduction. Above the upper threshold, the deduction disappears for specified service businesses. That design gives QBI its biggest value to mid-income professionals and offers little to partners at large, high-revenue firms. C corporations aren’t eligible at all, which is another reason most PLLCs stay pass-through.
Quarterly Estimated Tax Payments
Pass-through income isn’t withheld the way W-2 wages are, so PLLC owners make quarterly estimated payments to avoid underpayment penalties. Payments are due four times a year: April 15, June 15, September 15, and January 15 of the following year.19Internal Revenue Service. Estimated Tax – Individuals
You avoid the underpayment penalty by paying at least 100% of your prior-year tax liability through estimated payments and withholding. If your AGI exceeded $150,000 last year ($75,000 if married filing separately), the safe harbor rises to 110%. The alternative safe harbor is 90% of the current-year liability, but that requires projecting income accurately, which is harder for practices with uneven revenue.
S corporation owners have a built-in cushion. Because part of their income arrives through a W-2 with regular withholding, quarterly payments only need to cover the distribution side and other non-wage income. Default pass-through owners carry the whole quarterly load themselves.
State and Local Taxes
Federal classification is only part of the picture. Most states follow the federal pass-through or corporate election for state income tax, so your state return generally tracks your federal one. Several states layer on additional taxes that apply no matter what federal election you make.
Many states charge an annual franchise tax or registration fee on LLCs and PLLCs simply for existing there. These range from under $50 to several hundred dollars a year, and some states charge substantially more. A handful of states impose a gross receipts or margins tax calculated on revenue rather than net income, which can produce a real state tax bill in a year when your margin is thin.
Local jurisdictions often add business license fees or professional privilege taxes for licensed practitioners. A PLLC operating across multiple cities or counties needs to track each local requirement separately, since these obligations vary and aren’t automatically captured on your federal or state return.