Self-Employment Tax for Partners and LLC Members: Rates and Filing

If you actively work in a partnership or multi-member LLC, self-employment tax for partners and LLC members generally applies to your share of the ordinary business profit plus any guaranteed payments you receive for services. The combined rate is 15.3% on net earnings up to the 2026 Social Security wage base of $184,500, with the 2.9% Medicare piece continuing on every dollar above that.¹ How much of your K-1 income actually gets hit depends on whether you’re a general partner, a limited partner, or an LLC member, and the last of those still sits in unsettled territory.

Who Owes the Tax

General Partners

General partners owe self-employment tax on their distributive share of the partnership’s ordinary trade or business income. Guaranteed payments for services count too, whether or not the partnership was profitable that year. Certain categories, including rental income, interest, dividends, and capital gains, are carved out by statute even for general partners.²

Limited Partners

A limited partner’s distributive share is excluded from self-employment tax. The only piece that gets taxed is guaranteed payments received for services performed for the partnership.³ Guaranteed payments for the use of capital stay outside the tax alongside the distributive share.²

Escaping self-employment tax isn’t the same as escaping tax on that income. If your modified adjusted gross income exceeds $200,000 (single) or $250,000 (joint), the excluded income can still catch a 3.8% Net Investment Income Tax on top of ordinary income tax.

LLC Members

The federal tax code doesn’t mention LLCs when it defines the limited partner exclusion. The IRS proposed regulations in 1997 that would have treated an LLC member as a limited partner unless they had personal liability for the entity’s debts, authority to bind the entity, or participated for more than 500 hours a year, with members of service businesses like law, medicine, accounting, and consulting excluded from limited partner treatment entirely.⁴ Congress blocked those regulations through appropriations riders, they were never finalized, and the IRS has issued no updated guidance since.

In January 2026 the Fifth Circuit Court of Appeals rejected a Tax Court “functional analysis” approach and held that “limited partner” means someone who holds limited partner status under state law. The court cautioned that its ruling addresses partners in actual limited partnerships, not LLC members. Related appeals are pending in other circuits.

The practical takeaway: LLC members who actively participate in the business should treat their distributive share as self-employment income. Claiming the limited partner exclusion without specific facts to support it invites an audit and penalties.

Which Income Counts

Your K-1 will list several income categories, and not all of them are subject to self-employment tax. What counts is your distributive share of ordinary trade or business income, plus guaranteed payments for services. What’s carved out for all partners:

Rental income from real estate, unless you’re in the business of dealing in real estate.⁵
Interest and dividends, unless the interest is earned as part of the trade or business itself, such as a lending operation.⁵
Capital gains and losses. But if the partnership holds property primarily for sale to customers, like a house-flipping business, that income is ordinary and taxable.⁵
Certain periodic, lifetime retirement payments to former partners.⁵

How the Tax Is Calculated

The 92.35% Adjustment

Before applying any rate, you multiply your net self-employment earnings by 0.9235. That adjustment approximates the employer-side payroll taxes traditional employees don’t pay on their wages.⁶ Net earnings of $150,000 become a taxable base of $138,525.

Rates and the 2026 Wage Base

The 15.3% combined rate has two parts. Social Security is 12.4%, applied only to the first $184,500 of net earnings in 2026.¹ Medicare is 2.9% with no cap.

Higher earners pay an Additional Medicare Tax of 0.9% on self-employment income above $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately), bringing the top Medicare rate to 3.8% on income over the applicable threshold.⁷

A Worked Example

Say you’re a general partner with $200,000 of ordinary business income on your K-1. Multiply by 0.9235 and your taxable base is $184,700. The 12.4% Social Security tax applies to $184,500 of that, or $22,878. The 2.9% Medicare tax applies to the full $184,700, or $5,356. Total self-employment tax: roughly $28,234, before any Additional Medicare Tax.

Ways to Reduce What You Owe

The Deductible Half

You can deduct half of your self-employment tax as an adjustment to gross income on Form 1040. The deduction cuts your income tax, not your self-employment tax.⁸ On $28,234 of self-employment tax, that’s about $14,117 knocked off your AGI, which can also improve eligibility for other deductions and credits.

Retirement Plan Contributions

A SEP-IRA lets you contribute up to 25% of net self-employment earnings (after the deductible-half adjustment), capped at $72,000 in 2026. A solo 401(k) allows an employee deferral of up to $24,500 in 2026 plus employer-side contributions of up to 25% of net earnings, with the combined total also capped at $72,000. The employee deferral rises to $32,500 at age 50 and up, and to $35,750 for ages 60 through 63 under the SECURE 2.0 Act catch-up. These contributions reduce income tax, not self-employment tax, but the tax deferral is real money for partners in higher brackets.

Electing S-Corporation Tax Treatment

An LLC taxed as a partnership can elect S-corporation treatment by filing Form 2553 no more than two months and 15 days after the beginning of the tax year the election should take effect. The entity must have no more than 100 shareholders (all U.S. individuals, qualifying trusts, or certain tax-exempt organizations) and only one class of stock.⁹

Under S-corp treatment, only wages paid to shareholder-employees are subject to payroll taxes. Profit distributions above those wages are not. Someone earning $250,000 through a partnership-taxed LLC owes self-employment tax on the whole amount (after the 92.35% adjustment). Through an S-corp, that person might draw a $120,000 salary and take $130,000 as a distribution, saving roughly $20,000 in employment taxes.

The IRS scrutinizes this closely. Officers who provide more than minor services must receive reasonable compensation as wages before taking distributions, measured against factors like training, time devoted to the business, and comparable-role pay.¹⁰ 11 An artificially low salary is a well-known audit trigger. There’s also administrative cost: payroll, quarterly payroll tax returns, and corporate formalities. The math tends to favor the election once self-employment income consistently runs $80,000 to $100,000 or more, though the break-even depends on the facts.

Filing and Paying

From K-1 to Schedule SE

The partnership files Form 1065 and issues each partner a Schedule K-1. For general partners, Box 14 reports net earnings from self-employment. Reduce that figure by any Section 179 deductions and unreimbursed partnership expenses before it moves to Schedule SE.¹² Spouses who are both partners each file their own Schedule SE.

Schedule SE applies the 92.35% multiplier, calculates Social Security and Medicare components, and produces the total tax. Half goes on Schedule 1 as an income adjustment; the full amount goes on Form 1040 as tax owed.⁶

Quarterly Estimated Payments

Nothing is withheld from partnership income, so you make estimated payments on Form 1040-ES. Due dates are April 15, June 15, September 15, and January 15 of the following year, shifting to the next business day when a due date falls on a weekend or holiday.¹³ You can pay through IRS Direct Pay, EFTPS, the IRS2Go app, or by mailing a check with a Form 1040-ES voucher.¹⁴

Safe Harbors

You avoid an underpayment penalty if payments plus any withholding cover the smaller of 90% of this year’s tax or 100% of last year’s tax. If your prior-year AGI topped $150,000 ($75,000 married filing separately), the prior-year figure rises to 110%.¹⁵ When income is unpredictable, the prior-year safe harbor is the simplest path: four equal installments totaling 100% (or 110%) of last year’s tax, and you’re protected even if this year’s income doubles.

Late Filing and Payment Penalties

The failure-to-file penalty is 5% of unpaid tax per month or partial month, capped at 25%. The failure-to-pay penalty is 0.5% per month on the unpaid balance, also capped at 25%. When both apply, the filing penalty is reduced by the payment penalty amount, so the combined rate during the first five months is 5% per month rather than 5.5%.¹⁶

Fixing an Earlier Year

If you find an error in a past self-employment tax calculation, file Form 1040-X for that year with a corrected Schedule SE. You generally have three years from the original filing date, or two years from the date you paid the tax, whichever is later, to claim a refund. File a separate 1040-X for each year you need to correct.¹⁷

1
Social Security Administration. Contribution and Benefit Base
2
Office of the Law Revision Counsel. 26 USC 1402 – Definitions
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Internal Revenue Service. Entities 1
4
Internal Revenue Service. 1997 Proposed Regulations on Limited Partner Definition
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Internal Revenue Service. Self-Employment Tax and Partners
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Internal Revenue Service. Schedule SE (Form 1040) – Self-Employment Tax
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eCFR. 26 CFR 1.1401-1 – Tax on Self-Employment Income
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Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
9
Internal Revenue Service. Instructions for Form 2553
10
Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers
11
Internal Revenue Service. S Corporation Compensation (FS-2008-25)
12
Internal Revenue Service. Partner’s Instructions for Schedule K-1 (Form 1065)
13
Internal Revenue Service. Estimated Tax
14
Internal Revenue Service. 2026 Form 1040-ES – Estimated Tax for Individuals
15
Internal Revenue Service. Publication 505 (2026), Tax Withholding and Estimated Tax
16
Internal Revenue Service. Failure to File Penalty
17
Internal Revenue Service. Instructions for Form 1040-X