Multi-Member LLC Taxes for Physicians: A Tax Planning Guide
- Aug 5
- 9 min read
You and a colleague decide to build something together, a practice, a surgery center, or the building your group already rents. The lawyer says "form an LLC," a website charges you $199, and now two physicians own a business and nobody has explained what multi-member LLC taxes look like. Here is the physician version, with the 2026 numbers and real dollar math.
In This Blog
How is a multi-member LLC taxed?
What tax form does a multi-member LLC file?
Do physician partners pay self employment tax?
Should a physician group elect S-corp taxation?
Can a physician group take the QBI deduction?
How do PTET and the SALT cap affect a physician group?
Do physicians even qualify to use a multi-member LLC?
What do the taxes look like for two physician partners?
What should a physician group do next?
How is a multi-member LLC taxed?
By default, a multi-member LLC is taxed as a partnership. In plain terms:
There is no separate federal income tax at the entity level. The profit passes through to the owners and is taxed once, on each owner's personal return.
Each owner reports their share and pays the tax at their own rate.
The entity choice is a wrapper. The tax elections you make on top of it are what move the money.
That "taxed once" feature is the whole appeal, and it is why groups reach for a multi-member LLC instead of a C corporation, which is taxed twice. But pass through has a catch that surprises new partners, and it lives in the next section.
What tax form does a multi-member LLC file?
A partnership taxed LLC files Form 1065 and issues a Schedule K-1 to each owner. The 1065 is an information return: it reports the practice's income and splits it among the owners, but the LLC writes no federal income tax check itself. Each K-1 then flows onto that physician's personal Form 1040, where the tax is actually paid. The 1065 is due March 15 for a calendar-year practice, with a six-month extension available to September 15.
Here is the catch: phantom income. You are taxed on your share of the profit whether or not the partnership distributes it to you. If the group keeps $200,000 in the bank to buy equipment, you can still owe tax on your slice of that $200,000. Plan your quarterly estimates around your K-1 income, not around what hit your checking account. Our guide to quarterly estimated taxes for physicians walks through the math.
One quick vocabulary note, because it drives the next section. Partnerships pay owners in two ways: a guaranteed payment (a set amount for services or capital, paid whether or not the practice profits) and a distributive share (your cut of the remaining profit). Both are generally taxable to you, and both feed the self employment tax question below.
Do physician partners pay self employment tax?
Usually yes, and this is where a partnership gets expensive. An active physician partner generally owes self employment (SE) tax on guaranteed payments and on their distributive share of practice income. For 2026, SE tax runs:
12.4% for Social Security on the first $184,500 of earnings (the 2026 wage base).
2.9% for Medicare on all of it, with no cap.
An extra 0.9% Medicare surtax on earnings above $250,000 for a married couple filing jointly, or above $200,000 if you are single.
You get to deduct roughly half of the Social Security and regular Medicare portions, which softens the blow, but a physician partner earning several hundred thousand dollars is looking at a real SE tax bill every year.
You may hear that a physician can be treated as a "limited partner" and skip SE tax on part of the distributive share. Be careful. The IRS has challenged this position, especially for partners who work full time in the business. Treat any "limited partner" SE tax position as something to run past your tax team, not a default.
Should a physician group elect S-corp taxation?
This is the decision that moves the most money, and it is why many established groups do not stay a plain partnership.
An LLC can keep its legal wrapper and simply ask the IRS to tax it as an S corporation by filing Form 2553. An S-corp splits each owner physician's pay into two buckets:
A reasonable salary, run through payroll, which carries Social Security and Medicare tax.
A distribution, which is not subject to those payroll taxes.
For a high earning physician, the honest version of the savings is smaller than the internet promises. By the time your income clears a few hundred thousand dollars, the Social Security portion is already maxed out at the $184,500 wage base whether you are a partner or an S-corp owner, so there is no Social Security saving left to capture. The real saving is the Medicare piece, 2.9% plus the 0.9% surtax, on the distribution portion.
That is worth having, but it is about 3.8% of the distribution, not 15.3%.
The election also comes with strings that hit groups harder than solo physicians:
Reasonable compensation applies to every owner. Each physician's salary has to be defensible against specialty compensation data. A group cannot pay everyone $50,000 and call the rest a distribution.
Eligibility rules are strict. An S-corp can have no more than 100 shareholders, every owner must be an individual (or certain trusts and estates), no owner can be a nonresident alien, and the company can have only one class of stock. If one of your "partners" is itself an LLC, a partnership, or a corporation, the group cannot be an S-corp.
One class of stock kills flexible splits. S-corps must allocate profit strictly in proportion to ownership. The we-split-it-by-production allocations that partnerships allow are off the table.
So the S-corp question for a group is not just "does it save payroll tax." It is whether the saving beats the cost of running payroll and a second return, whether you can live without flexible allocations, and whether you even qualify. Our guides on whether physicians should form an S-corp or LLC and the S-corp tax structure for physicians carry the full break even math.
Can a physician group take the QBI deduction?
Short answer: at group partner income levels, usually nothing.
The qualified business income (QBI) deduction under Section 199A lets many pass-through owners deduct up to 20% of business profit, and the One Big Beautiful Bill Act made it permanent. The problem for physicians is that a medical practice is a "specified service trade or business" (SSTB), and the SSTB deduction phases out completely at higher income.
For 2026, the SSTB deduction is fully gone once taxable income passes:
$553,500 for a married couple filing jointly.
$276,750 for a single filer.
Most attending physicians in a group practice clear those numbers, so the QBI deduction is simply unavailable, and your entity choice does not change that. The new $400 minimum deduction that OBBBA added for 2026 does not rescue an SSTB owner who is over the threshold. The takeaway: do not pick your entity expecting a QBI deduction to appear. For households near the line, income timing and retirement contributions matter more than the entity form.
How do PTET and the SALT cap affect a physician group?
This is the workaround worth your attention, because it is built for exactly your situation.
Start with the problem. The federal deduction for state and local taxes (the SALT cap) is $40,400 for 2026, but it phases down for higher earners: it drops by 30 cents for every dollar of income above roughly $505,000, and it bottoms out at $10,000. A physician couple well into the mid-six figures is generally stuck deducting just $10,000 of state tax, no matter how much they actually paid.
The fix is the pass through entity tax (PTET). Most states now let the LLC or S-corp pay the owners' state income tax at the entity level. Because the business pays it, the tax becomes a federal business deduction that is not subject to the individual SALT cap. The state then gives each owner a credit, or in some states a subtraction, on their state return.
Two things make PTET especially relevant for physician groups:
PTET remains available to medical practices under current federal law. It is one of the few high income tax breaks a physician group can still reliably use.
PTET is administered state by state, and the rules, election deadlines, and payment mechanics vary widely. Some states require the election early in the year, before you know your numbers, and missing a deadline can cost the whole benefit for that year.
If your group operates in more than one state, the PTET analysis multiplies and interacts with the credit for taxes paid to other states. That is a coordinate with your tax team item, not a set and forget one.
Do physicians even qualify to use a multi-member LLC?
Before any of the tax planning, confirm your state even lets you use the entity. For a clinical practice, many states will not allow a plain LLC. You may be required to use a professional LLC (PLLC) or a professional corporation (PC), and ownership of the entity that bills for medical care is usually limited to licensed physicians under corporate practice of medicine rules. That blocks the popular idea of putting half the clinical practice in a spouse's name.
The good news for taxes: the treatment in this article applies the same way to a multi-member PLLC, so read "LLC" as "LLC or PLLC" throughout. This is a state licensing question, not a federal tax one, so confirm your state's rules before you file. The full breakdown lives PLLC vs PC for physicians entity choice and tax planning.
What do the taxes look like for two physician partners?
Dr. Okafor and Dr. Lin open a two physician dermatology group and own it 50/50. The practice nets $900,000 in its first full year, so $450,000 flows to each of them. Assume each files as a single taxpayer. The figures are illustrative, and your results will vary.
As a plain multi-member PLLC (partnership default):
Each physician gets a K-1 for $450,000 and pays income tax on it.
Each owes self employment tax: the 12.4% Social Security portion caps out at the $184,500 wage base, the 2.9% Medicare applies to the full $450,000, and the extra 0.9% applies to the portion above the $200,000 single filer threshold. That is a five figure SE tax bill each, before income tax.
QBI deduction: at $450,000, each is well above the $276,750 single filer SSTB ceiling, so the deduction is $0. (A physician married filing jointly would sit just under the $553,500 joint ceiling at this income and could still claim a partial deduction, which is its own planning conversation.)
After electing S-corp treatment for the practice:
Each physician takes a reasonable salary supported by dermatology compensation data, say $300,000, and a $150,000 distribution.
The Social Security tax is unchanged, because it was already capped either way. The saving is the roughly 3.8% Medicare portion (2.9% plus the 0.9% surtax) on the $150,000 distribution, on the order of $5,700 per physician per year, before the cost of running payroll and a second return. Your results will vary.
QBI is still $0. The S election did not change that.
Adding PTET:
Their state lets the practice elect PTET, so the practice pays the state income tax on the partners' behalf and deducts it federally.
Without PTET, each physician would be capped at a $10,000 SALT deduction because their income phases out the cap. With PTET, the state tax the practice pays becomes a full federal deduction at the entity level, which on a high six figure profit can be worth far more than the individual $10,000 either of them could claim alone.
Same two physicians, same practice. The entity wrapper (a PLLC) never changed. The tax elections layered on top, an S-corp election and then PTET, are where the planning happened.
What should a physician group do next?
A multi-member LLC is the natural home for a physician group, but the default partnership taxation is rarely where you want to leave it. The order of operations is what matters: confirm your state even allows the entity, decide whether an S-corp election clears its own costs, set your expectations on QBI if your income is above the ceiling, and put PTET to work while it is available.
If you are forming a group, taking on a partner, buying a building together, or you inherited a structure a formation service set up without a tax plan behind it, talk to your tax team before the next filing deadline locks in a choice. Doc Wealth is physician founded, and our elite team of Tax Attorneys, CPAs, and Enrolled Agents handles proactive entity and partnership planning year round, so the expensive surprises do not show up in April. Reach out today for prompt, dependable communication.
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This material is intended for educational and informational purposes only and does not constitute tax, legal, accounting, or financial advice. The content is general in nature and may not apply to your specific circumstances. Tax laws and financial regulations are subject to change and interpretation, and the application of these laws can vary based on individual situations. Before making any decisions, you should consult with a qualified tax advisor, legal counsel, or financial professional.
