BDO USA: The self-employment tax exemption may be ending for some limited partners. Will you be impacted? (August 2021)

BDO USA has published an article, “The self-employment tax exemption may be ending for some limited partners. Will you be impacted?”, published on BDO USA. The abstract is as follows:

The recently published Green Book contains details on changes proposed by the Biden Administration that aim to rationalize the net investment income tax (NIIT) and the self-employment tax imposed under the Self-Employment Contributions Act. Broadly, these proposals would:

Ensure that all trade or business income earned by high-income taxpayers (taxpayers with adjusted gross income in excess of $400,000) is subject to either the NIIT or self-employment tax, by treating trade or business income that is not subject to self-employment tax as net investment income subject to the NIIT;

Eliminate the current exception from self-employment tax for limited partners who provide services to and materially participate in the partnership’s trade or business; and

Subject S corporation owners who materially participate in the S corporation’s trade or business to self-employment tax on their distributive share of trade or business income in excess of certain threshold amounts.

The proposed change for limited partners is of particular interest, given the IRS’ increased scrutiny of the use of the limited partner self-employment tax exception.

Click here to read BDO USA’s summary of “The self-employment tax exemption may be ending for some limited partners. Will you be impacted?”.

Posted by Jessica Ji, Associate Editor, Wealth Strategies Journal.

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