SECA Tax on Partnership Distributions

Partners must include their distributions from the partnership as well as any guaranteed payments they receive for their services for the partnership as net self-employment income, on which SECA tax must be paid.

These amounts should be shown on the Schedule K-1 information return that you receive from the partnership at the end of the year. For all general partners, this is true whether you are an active or inactive member of the partnership. For limited partners, you need only to include any guaranteed payments, such as salary or professional fees received during the year.

There is an exception to this rule if the partnership is an investment club, and the club limits its activities to investing in CDs and securities, and collecting income on the investments. In that case the income is not considered self-employment income.

If you are a retired partner, you do not need to include your retirement income received from the partnership in net earnings from self-employment if all of the following are true:

• You are receiving periodic payments for life.
• Your share of the partnership capital has been fully repaid. The partnership owes you nothing but the retirement payments.
• You performed no services for the partnership this year.