Employees of partnerships, LLCs or their disregarded entity subsidiaries who receive equity in such entities may be treated as “self-employed” for tax purposes.

On May 3, 2016, the US Treasury Department issued new temporary and proposed regulations addressing the self-employment tax treatment of an individual that is both: (i) an employee of an entity that is disregarded for federal income tax purposes (such as a single-member limited liability company (LLC)), commonly referred to as a “DRE”; and (ii) a partner or member in a parent partnership or LLC that owns the DRE employer. The Regulations provide that, for self-employment tax purposes, the DRE is disregarded and the individual is subject to the same self-employment tax rules as a partner in a partnership that does not own the DRE.

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