Washington State · 2026 · One month of work

Where Bob's $10,000 goes

Bob's Computers is an LLC owned by Bob, with one employee: Sue, who earns $5,000 a month. Bob bills a new client $10,000 for a month of IT support. The money comes in as one check, then splits between the business and Sue's paycheck. Follow both until the money lands in Bob's and Sue's personal bank accounts.

Client Co. · Operating AccountNo. 4417 · Oct 3, 2026
Pay to the order ofBob's Computers LLC
$10,000.00
Ten thousand and 00/100 dollars
Memo: IT support, September⑆125000000⑆ 4417
Taxes Sue's paycheck Left with the business / Bob

Who has a safety net?

The law requires Bob to fund a safety net for Sue. Bob has no employer funding one for him. If the client stops paying, Bob's income stops the same day, with no notice, no severance and no unemployment check.

If something goes wrongSueBob
The work endsUnemployment benefits. Funded by the company's state and federal unemployment taxes on her wages.Nothing. Self-employment income doesn't qualify for unemployment benefits.
Hurt on the jobWorkers' comp. The company pays most of the L&I premium.Only if he opts in to L&I coverage and pays every dollar of the premium himself.
New baby or serious illnessPaid Family & Medical Leave. Premium comes out of her check.Only if he opts in, pays the premium himself, and commits to it for three years.
Needs long-term careWA Cares. Premium comes out of her check.Only if he opted in during a limited enrollment window.
Retirement and disabilitySocial Security and Medicare. The company pays half.Social Security and Medicare, but he pays both halves himself through self-employment tax.

Where the $10,000 ended up

This isn't the end. When Bob and Sue spend this money, they pay sales tax, and every dollar becomes another business's gross receipts, taxed again with B&O, payroll and income tax on its own workers.

Assumptions

  • $10,000 every month ($120k/yr), and the business has no costs other than Sue.
  • Sue and Bob each file single with the standard deduction ($16,100) and have no other income.
  • Sue earns $5,000/month ($60,000/yr), about 173 hours a month. Bob takes no paycheck. The LLC's profit is Bob's personal income, whether he draws it or not.
  • ~10% combined sales tax. Actual rates run about 8.x% to 10.6% by city. No local city B&O tax.
  • WA unemployment at 1.2% plus the 0.03% administration fee. Each employer's real rate depends on its layoff history.
  • L&I at about $0.30/hour, with Sue paying about 24%. The real rate depends on the risk class and claims history.

How the numbers were built

  • The sales tax comes out of the $10,000 because it wasn't listed on the invoice. Under WAC 458-20-107 the state treats an unlisted-tax price as pre-tax, so Bob owes the full 10%.
  • Sue's federal withholding: $60,000 − $16,100 = $43,900 taxable, $5,020/yr.
  • Bob's profit: $3,465.88/month ($41,591/yr). Self-employment tax is 15.3% of 92.35% of profit ($5,877/yr). Income tax is on profit minus half the SE tax, the standard deduction and the 20% QBI deduction: $18,042 taxable, $1,917/yr.

Sources