Answers · Partnerships · Form 1065
Can Partners Be Employees of a Partnership?
A bona fide partner generally is not an employee of the same partnership for federal employment-tax purposes.
This question is answered in full on the main page for it.
How it works
The rule, and what it turns on.
Partner service compensation may be guaranteed payments or §707(a) payments depending on facts; distributions/draws are separate.
Example
$8,000 fixed monthly amount to managing partner regardless of income generally points to guaranteed payment rather than W-2 wage.
Common mistakes
What we see go wrong, and what we do instead.
- Putting partners on W-2.
- Calling all partner withdrawals salary.
A better approach
- Use guaranteed payment and draw accounts separately.
Authority
Where this comes from, so you can check it.
IRC §707(a), (c); Rev. Rul. 69-184, 1969-1 C.B. 256. IRC §707(c); Treas. Reg. §1.707-1(c); IRS Publication 541 and Form 1065 instructions.
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
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