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I'm starting an LLC in Illinois (software consulting) and I'm the only member in the business. I'm trying to figure out what wage to pay myself that will ultimately cover my personal expenses after all other expenses/taxes get paid. I'm trying to work backwards starting with my monthly expenses.

So, let's say for example:

Personal Monthly Expenses = $5000
Business Monthly Expenses = $500

Social Security Tax = 6.2% + 6.2% (employer and employee)
Medicare Tax = 1.45% + 1.45% (employer and employee)
State Tax = 3% (not sure exactly)
Self Employment Tax = 15.3%

Hours worked = 160

Given the above, what should the minimum billable rate be? If I'm missing any details I would appreciate a comment.

I think I want to keep the calculations simple. Meaning, I don't want to worry about taxes that have a maximum cap or taxes that change based on an income/revenue range.

  • 5
    This question might be better asked in the Startups SE site. You're kind of going about it backwards. Charge the highest hourly rate that you can reliably get from your customers. Look at prevailing rates and other metrics. Taxes, payroll, etc are sort of a separate issue. Planning your cash flow is a good thing and you're on the right track in that sense. – Rocky Jan 13 '16 at 23:22
  • You do not need to pay yourself wages at all, unless you chose to be taxed as S-Corp. – littleadv Jan 14 '16 at 0:37
  • Are you asking how much you should pay yourself, or are you asking how much you should charge the customer? – Ben Miller Jan 14 '16 at 12:00
  • don't forget the cost of insurance, retirement, sick days, holidays, vacations, & time to find new business. You may not be able to bill 160 hours a month every month. – mhoran_psprep Jan 14 '16 at 22:17
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Rather than discuss whether you're thinking about things incorrectly, I'll just show you how to answer the question you asked:

  • Total expenses = $5,000 + $500 = $5,500
  • Total overhead is = 6.2% + 6.2% + 1.45% + 1.45% + 3% + 15.3% = 33.6%
  • So total income to meet expenses must be = $5,500 * (1.00 + 0.336) = $7,348
  • Which implies the hourly rate, at 160 hours worked, for the business to break-even is $45.93/hr.

Now as to what wage to pay yourself to meet your expenses, do the same thing but only using personal components:

  • Total expenses = $5,000
  • Total overhead = 6.2% + 1.45% + 3% + 15.3% = 25.95%
  • So total income to meet expenses must be = $5,000 * (1.00 + 0.2595) = $6,298
  • Which implies the hourly rate, at 160 hours worked, for you personally to break-even is $39.36/hr
  • @TimReddy I suspect that every answer should be a non-nonsense one… – glglgl Feb 6 '18 at 13:49

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