Trayvon is a general partner in a partnership; his share of ordinary income was reported in box 14 of Schedule K-1. Which of the following statements is TRUE?

Question

His ordinary income is not subject to self-employment tax.
His ordinary income is subject to self-employment tax.
The amount of income reported in this box will be taxed at the rate that applies to long-term capital gains.
Trayvon is considered an employee.

Answer 1

The correct statement is: His ordinary income is subject to self-employment tax.

In a partnership, general partners typically have their share of the partnership's ordinary income reported to them and this income is considered self-employment income. As such, it is subject to self-employment tax. The other statements are not accurate in the context of how partnership income is treated for tax purposes.