Does K-1 Income from an LLC need to pay Self Employment Tax?

Question

I'm partner in an LLC and got my K-1 for around 20K. When doing my personal tax return my software is charging the SE tax, pretty close to 3K. Other partner prepared her taxes with a CPA and her return doesn't show any SE tax and made the same money. Who is right, the CPA or the software package? I tried to check a little more in the IRS web page but found nothing.

Answer 1

It all depends what the K-1 says.

The K-1 you received from the LLC is required to report your distributive share of income/loss as "ordinary income/loss on line 1, AND, indicate
whether those earnings are subject to self-employment tax, LINE 14.

Whether Turbo Tax or a CPA does this work is unimportant in this case.

If the K-1 does not show an amount on Line 14, do not indicate that your earnings are subject to self-employment tax. It is the responsibility of the LLC
to report the K-1's accurately. It is not an election to be made by you to pay
self-employment tax.

Answer 2

It depends if you materially participated in the business or not.

Generally, members of LLCs filing Partnership Returns pay self-employment tax on their share of partnership earnings.
There is a special rule for members who are the equivalent of limited partners. They pay self-employment tax only if the LLC pays them for services.

Answer 3

If you are both "general" partners, you both should be paying SE tax.