Self-Employment Tax on K-1 Income
Whether your K-1 carries the 15.3% tax depends on what kind of entity issued it and what you actually do there, not on what your title says.
A guide by Taxstra Tax & Accounting · CPA-led tax strategy for business owners
Written by Bryan Martin, CPA, Managing Partner and Founder of Taxstra. Last updated August 20, 2026.
Quick answer
K-1 income from a partnership where you actively work, which includes most physician medical groups, is generally subject to self-employment tax: 15.3% up to the $184,500 Social Security wage base for 2026, then 2.9% to 3.8% Medicare above it. True limited partners and all S corporation K-1 profits are exempt.
The biggest single-line difference between a W-2 offer and a partnership offer is usually not the income tax. It is the employment tax. An employee pays 7.65% and the employer matches it invisibly. A partner pays both halves, visibly, through self-employment tax on Schedule SE.
But not every K-1 carries the tax. The rules split on two axes: what kind of entity issued the K-1, and whether you are genuinely a passive limited partner or an owner who works in the business. Physicians in medical groups almost always land on the taxable side of both.
Which K-1s Carry Self-Employment Tax
Entity type first, then your role.
| K-1 source | Self-employment tax? |
|---|---|
| General partner or working LLC member in a service business (physician group, law firm, consulting firm) | Yes, on the distributive share and guaranteed payments |
| True limited partner (passive investor) | Only on guaranteed payments for services |
| Rental real estate partnership or syndication | Generally no, rental income is excluded |
| S corporation K-1 | No, employment tax runs through required W-2 wages instead |
Your partnership tells you its position in box 14, code A, of the K-1: net earnings from self-employment. For an active physician partner that box should roughly equal the guaranteed payments plus the distributive share of practice income.
The 2026 Math
Three layers, one cap, one deduction.
Self-employment tax applies to 92.35% of your net self-employment earnings. For 2026 the layers are: 12.4% Social Security up to the $184,500 wage base, 2.9% Medicare on everything, and an additional 0.9% Medicare tax once total earned income passes $200,000 for single filers or $250,000 married filing jointly. You then deduct the employer-equivalent half of the tax above the line.
W-2 wages elsewhere change the stack
If you have W-2 wages from a hospital alongside partnership income, your wages soak up the Social Security wage base first. A physician with $184,500 or more of W-2 wages pays no 12.4% layer on the K-1 at all, only the Medicare layers. Mixed-income years are exactly when the estimate math goes wrong, in both directions.The Limited Partner Fight
Titles do not beat facts.
The statute excludes a limited partner's distributive share from self-employment tax. It was written in 1977 for passive investors in limited partnerships, long before LLCs and LLPs let working owners wear the limited label. Ever since, service firms have tried to route working partners through the exception, and the IRS and the courts have pushed back with a functional test: partners who actively perform the firm's services are not limited partners for this purpose, whatever their certificate says.
The area is actively litigated, and one appellate court recently complicated the picture; the current state of that dispute is covered in our K-1 vs 1099 comparison. The practical guidance for a physician treating patients through a partnership has not changed: plan on self-employment tax, and treat any structure promising to eliminate it as a position that needs professional review, not a loophole.
A Worked Example
The real 2026 cost on a $400,000 distributive share.
Illustrative round numbers for a single physician whose only earned income is a $400,000 K-1 distributive share, all subject to self-employment tax. Net earnings after the 92.35% factor are about $369,400.
2026 self-employment tax, approximate
- Social Security: 12.4% on $184,500 (capped)$22,878
- Medicare: 2.9% on $369,400$10,713
- Additional Medicare: 0.9% on earnings over $200,000$1,525
- Total self-employment taxabout $35,100
- Less: above-the-line deduction for the employer-equivalent halfabout $16,800 deduction
Two honest observations. First, the marginal employment tax on income above the wage base is only 3.8%, not 15.3%, so the scary headline rate mostly applies to the first $184,500. Second, $35,100 is still a number worth planning around, which is what quarterly estimates, retirement plan design, and the deductions in our UPE guide are for.
Not Sure What Your K-1 Should Be Paying?
Self-employment tax positions on partnership K-1s range from conservative to aggressive, and the difference is real money with real audit exposure. A Taxstra CPA can review yours. The initial consultation is free.
Frequently Asked Questions
Plan the Employment Tax, Not Just the Income Tax
For a high-earning partner, self-employment tax planning is worth thousands a year when it is done honestly and correctly. Book a free initial consultation with a Taxstra CPA.
Next Steps
Filing it yourself is fine. Optimizing it is where the money is.
Getting the form right keeps you out of trouble. The strategies below are what actually lower the bill.
Physician K-1 and partnership taxes
The full guide to what changes when your income arrives on a K-1.
K-1 vs 1099 compared
How partner income stacks up against contractor income, including the current litigation over the limited partner exception.
Unreimbursed partnership expenses
The deduction that reduces self-employment tax as well as income tax.
Want a CPA to run the numbers for you?
Free 30-minute call with a Taxstra CPA. No pressure, just the math for your situation.
Authoritative Sources
- IRC Section 1402 (net earnings from self-employment; limited partner exception)
- IRS Instructions for Schedule SE
- SSA 2026 Fact Sheet (Social Security wage base $184,500)
- IRS Topic 560, Additional Medicare Tax
- IRS Partner's Instructions for Schedule K-1 (Form 1065), Box 14
Citations reflect U.S. federal tax law as of the article's last reviewed date.