Are Partners in a Partnership Self Employed?

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by Michael Lodge

So every so often a client will start a business and enter into a partnership, the question that comes up is are the partners considered employees or are they self employed.  This is important because a partnership will issue a K-1 and how your portion of ownership where the net income is reported to you, which goes to your personal income tax return and subject to self employment income.

Question: Are partners considered employees of a partnership or are they considered self-employed?

Answer:

Partners in a partnership (including members of a limited liability company (LLC)) are considered to be self-employed, not employees, when performing services for the partnership.

  • If you are a general partner of a partnership (or treated as a general partner in an LLC) that carries on a trade or business, your net earnings from self-employment include your distributive share of the income or loss from that trade or business. General partners must also include guaranteed payments for services rendered to, or on behalf of, the partnership as net earnings from self-employment.
  • If you are a limited partner of a partnership (or treated as a limited partner in an LLC) that carries on a trade or business, only guaranteed payments for services you rendered to, or on behalf of, the partnership are net earnings from self-employment. Limited partners do not pay self-employment tax on their distributive share of partnership income, but do pay self-employment tax on guaranteed payments.

If you have tax questions on partnerships call our office at:  877.778.1770