What is Self-Employment Tax?

What is Self-Employment Tax?

Generally, an LLC member is not considered an employee so no contribution to Social Security
or Medicare is withheld from pay. Members are responsible for paying these taxes themselves
directly to the IRS. Some members may be excluded from this requirement if they are only
capital investors rather than contributing owners affecting the day to day operation of the
business.

Self-Employment Tax can also be avoided if the primary business activity of the LLC is passive. Passive activity is activity in which the owners of the company did not materially participate in during the tax year. Examples:  Real Estate Holdings, holdings, royalties and such.