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  1. #1
    Join Date
    Sep 2016
    Posts
    2

    Default Does Being a Non-Managing Member of a LLC Put SSDI at Risk

    I have been disabled and collecting SSDI since 2012. I had originally been denied SSDI, but following my appeal hearing it was awarded to me.

    I would like to invest in (become a 10% member of) a new LLC that is forming. It is a multi-member, manager-managed LLC and not a member-managed LLC. If I join the LLC, I will receive a K-1 from the LLC at the end of the tax year. Before I make my decision, I want to be sure that my interest in the company will not jeopardize my SSDI eligibility.

    I am hoping that someone can tell me whether the K-1 income from a non-managing member in a manager-managed LLC counts as SGA income. For me, my share of the profits would be investment income since I would not be participating in the business, just helping to capitalize it. I know that some income (stock/dividend investment income, real estate income, alimony, etc.) doesn't count against SSDI eligibility. But I can't find a reference regarding K-1 income, and whether the SSA will treat a non-participating member of a manager-managed LLC different than a member of a member-managed LLC.

    I have checked the Social Security Administration's "Red Book" and found no answer. Calling the SSA only led to them sending me a copy of the Red Book, which didn't address the topic.

    Can someone please answer this?

  2. #2
    Join Date
    Oct 2006
    Posts
    16,206

    Default Re: Does Being a Non-Managing Member of a Manager-Managed LLC Put SSDI at Risk

    Quote Quoting flybyweb
    View Post
    I have been disabled and collecting SSDI since 2012. I had originally been denied SSDI, but following my appeal hearing it was awarded to me.

    I would like to invest in (become a 10% member of) a new LLC that is forming. It is a multi-member, manager-managed LLC and not a member-managed LLC. If I join the LLC, I will receive a K-1 from the LLC at the end of the tax year. Before I make my decision, I want to be sure that my interest in the company will not jeopardize my SSDI eligibility.

    I am hoping that someone can tell me whether the K-1 income from a non-managing member in a manager-managed LLC counts as SGA income. For me, my share of the profits would be investment income since I would not be participating in the business, just helping to capitalize it. I know that some income (stock/dividend investment income, real estate income, alimony, etc.) doesn't count against SSDI eligibility. But I can't find a reference regarding K-1 income, and whether the SSA will treat a non-participating member of a manager-managed LLC different than a member of a member-managed LLC.

    I have checked the Social Security Administration's "Red Book" and found no answer. Calling the SSA only led to them sending me a copy of the Red Book, which didn't address the topic.

    Can someone please answer this?
    It depends in part, on the type of partner that you are. An inactive, limited partner would be a pure investor and it should not effect SSDI. An active, working partner would be earning income subject to self employment tax, and therefore it WOULD effect SSDI. Someone who is treated as an active partner, even though they are not, could also run into problems.

    So, you have a twofold issue here. The partnership needs to be set up properly for pure investors (assuming that there will be pure investors) and you have to be classified properly. Therefore the members of this new LLC need to be consulting both a business law attorney AND a tax professional to ensure that they are doing things properly.

  3. #3
    Join Date
    Sep 2016
    Posts
    2

    Default Re: Does Being a Non-Managing Member of a Manager-Managed LLC Put SSDI at Risk

    Thank you. I can see what I'd ask an attorney... presenting the issue as I did here and having them draft up the operating agreement. But what do I ask the tax professional? I'm not sure what role they play in setting up the llc or the operating agreement. The LLC is registered as a multi-member, manager managed LLC right now... so if I'm added to the the LLC and in the operating agreement I'm specified as an inactive, non-managing member with 10% interest in the company for investment purposes and with no decision or operational authority, wouldn't that be enough?

    Thanks again.

  4. #4
    Join Date
    Jan 2009
    Location
    California
    Posts
    1,045

    Default Re: Does Being a Non-Managing Member of a LLC Put SSDI at Risk

    https://www.ssa.gov/planners/retire/netearns.html

    The Red Book discusses work incentives for people who are working for wages or who are self-employed. Because you are going to have to file a K-1, then it sounds like you have a limited partnership and are NOT self-employed or working for wages. The reason you don't read about it in the Red Book is because you are not working. Other than write a check to invest, you are not working for this money; your money is working for this money. As capital. This is not an SGA issue.

  5. #5
    Join Date
    Oct 2006
    Posts
    16,206

    Default Re: Does Being a Non-Managing Member of a LLC Put SSDI at Risk

    Quote Quoting Janke
    View Post
    https://www.ssa.gov/planners/retire/netearns.html

    The Red Book discusses work incentives for people who are working for wages or who are self-employed. Because you are going to have to file a K-1, then it sounds like you have a limited partnership and are NOT self-employed or working for wages. The reason you don't read about it in the Red Book is because you are not working. Other than write a check to invest, you are not working for this money; your money is working for this money. As capital. This is not an SGA issue.
    K1s are not just issued to limited partners. They are also issued to working partners. Working partners are treated as self employed people. If the OP is going to be investing time, rather than money, in this LLC, he is going to be considered to be a working partner. Owning 10% of an LLC could possibly tend to indicate a working partner as well.

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