Paying SSA and Medicare

[Steve-here]

Up to 2021 my wife and I were employees and paid SSA and Medicare through our wages.
In 2021 I retired and my wife, stop working and set up an LLC company with our two daughters. We filed 2022 taxes as retired/self employed.
After completing the Turbo tax program, we paid around $7000 in IRS tax.
My question is does any of this go to SSA and Medicare and if not should we now pay this?
I ask this question as our SSA statement says we paid neither in 2022. I need to know if this is correct or an error.

Thank you.

[Anonymous_ · Accepted solution]

The structure of the LLC per your post indicates it is a multi-member LLC (you, your wife, and two daughters as members).

Was a 1065 filed for the LLC? Did you receive a K-1? Did you and/or your wife materially participate in the LLC's business? 

If you did receive a K-1 (1065) but did not materially participate (or otherwise receive a guaranteed payment from the LLC), and there was no entry on Line 14, then the program would not calculate self-employment tax and you would not owe any.

[Steve-here]

Thank you for the reply. Yes a 1065 was filed and my wife received a K-1. I have no role in this, it is just the three of them and they are all active.
That K-1 was included with the Turbo tax online amounts reported and Line 14 of the 1065 is blank.
Thank you. 

[Anonymous_]

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@Steve-here wrote:

That K-1 was included with the Turbo tax online amounts reported and Line 14 of the 1065 is blank.

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That is why you have no earnings from self-employment on your 1040.

See https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf

You will have to inquire as to whether this was by design or an oversight.

[Opus 17]

Two general points.

If you have income that is considered "compensation" for services performed, it is always subject to social security tax, even if you are retired and claiming benefits.  Adding additional income to your social security wage history might even cause your benefit to be recalculated and increased, depending on your work history.

Whether or not your wife's K-1 income should be considered "compensation" is something I can't directly address and I will leave that to @Anonymous_ to assist you. However, the fact that line 14 is blank is probably why your wife's participation was not recognized as "compensation."  It may be necessary for the partnership to amend their 1065 and issue new K-1s after which you will amend your 2022 return.  

My other point is that, even if the income was reported correctly, it can take up to a year to be recorded on your social security wage transcript.  (Although it's good you checked early, if you did indeed uncover a problem). 

[Mike9241]

what does the LLC do? what line in part III shows the income/loss on the k-1? what boxes were checked for G and H1? if line 1 or 3 of Part III something went wrong because line 14  should have had code A and an amount. On the other hand rental real estate income, Part III line 2, is not subject to self-employment tax and thus line14 would be blank

[Anonymous_]

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@Opus 17 wrote:

Whether or not your wife's K-1 income should be considered "compensation" is something I can't directly address and I will leave that to @Anonymous_ to assist you. 

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I can't make that determination because I'm not in possession of all of the facts other than to state that the absence of an entry on the K-1 (Line 14) indicates an oversight or that @Steve-here's did not materially participate (i.e., was the equivalent of a limited partner).

@Steve-here needs to inquire as how the LLC is treating his wife in terms of material participation and status as a general or limited partner.

[Anonymous_]

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@Mike9241 wrote:

........if line 1 or 3 of Part III something went wrong because line 14  should have had code A and an amount.....

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Not if @Steve-here's wife is considered to be a limited partner (member).

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@Mike9241 wrote:

On the other hand rental real estate income, Part III line 2, is not subject to self-employment tax and thus line14 would be blank

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That is actually a good point which @Steve-here should be able to answer.

[Steve-here]

Thank you, I will revisit this with the figures and see if it needs correcting.

[Steve-here]

They buy and sell things for a profit. They made around $70k last year and projected to make around $90K this year collectively.

[Anonymous_]

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@Steve-here wrote:

They buy and sell things for a profit. They made around $70k last year and projected to make around $90K this year collectively.

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And your wife materially participates in this business? She needs to check this out with the other members and the person/firm responsible for preparing the 1065 and K-1s.

[Mike9241]

they say this is an LLC not an LLP.

[Anonymous_]

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@Mike9241 wrote:

they say this is an LLC not an LLP.

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A member in an LLC can still not materially participate in the LLC (same as a partner can do so in a general partnership).

In an LP or LLLP, at least one partner must be a limited partner.

In an LLP, all of the partners have limited liability but otherwise an LLP is like a general partnership.

[Steve-here]

Thank you, it looks like I have some work to do, to check on this.