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Freeman, a single individual, reported the following income in the current year:
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Ordinary income from a S corporation $20,000
What amount of Freeman's income is subject to self-employment tax?
A. $20,000
B. $0
C. $70,000
D. $50,000
Answer: D
Explanation:
Explanation
Choice "c" is correct. Guaranteed payments are reasonable compensation paid to a partner for services rendered (or use of capital) without regard to his ratio of income. Earned compensation is subject to selfemployment tax. Payments not guaranteed are merely another way to distribute partnership profits. The ordinary income reported from an S corporation are taxable income to the individual or their own individual tax return but is not subject to self-employment tax. The ordinary income reported from a partnership may be subject to self-employment tax (if to a general partner).
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