Who must pay self-employment tax on his or her distributive share of partnership income?

A general partner must pay self-employment tax on their distributive share of partnership income because they are actively engaged in the management of the partnership and contribute to its ongoing operations. In terms of taxation, self-employment tax includes Social Security and Medicare taxes, which apply to individuals who earn income through self-employment or who have a business. General partners are considered to be self-employed for tax purposes due to their active involvement in the business.

In contrast, limited partners typically do not pay self-employment tax on their distributive share of income because they are usually only investors and do not participate in the management of the business. Shareholders, who are not involved in partnerships, would not be subject to self-employment tax either. Therefore, the structure of involvement in the partnership plays a crucial role in determining the tax obligations related to self-employment income.