Which type of legal structure requires the payment of self-employment tax?

The payment of self-employment tax is primarily associated with a sole proprietorship. In this legal structure, the business and the owner are considered the same entity for tax purposes. This means that the income generated by the sole proprietorship is reported on the owner's personal tax return, and the owner is responsible for paying self-employment tax on that income. Self-employment tax is designed to cover Social Security and Medicare taxes for individuals who work for themselves.

In contrast, corporations, partnerships, and limited liability companies (LLCs) operate under different tax regulations. Corporations are typically subject to corporate tax rates, and unless the owner is also an employee, they usually do not pay self-employment tax on corporate income. Partnerships also have different rules where income is passed through to partners, who may pay self-employment tax, but it is not as straightforward as in a sole proprietorship scenario. LLCs can choose to be taxed as either a corporation or a partnership, and if taxed as a corporation, the members would not pay self-employment tax on their share of the profits.

Therefore, a sole proprietorship stands out as the legal structure where self-employment tax must be paid directly by the owner on the net earnings of the business.