Can a partner receive wages from their partnership?
Henry Morales
Published Mar 30, 2026
Under the IRS’ view, an individual cannot be both a partner and an employee for purposes of wage withholding, payroll taxes or FUTA (Revenue Ruling 69-184). A partner’s salary is reported to the partner on a Schedule K-1 as a guaranteed payment rather than on a Form W-2.
How is working partner salary calculated?
5) Remuneration paid to partners is in accordance with the terms of the partnership deed but it exceeds the following permissible limit:
- a) On first Rs. 3 Lakhs of book profit or in case of loss – Rs. 1,50,000 or 90% of book profit, whichever is more;
- b) On the balance of the book profit – 60% of book profit.
How is allowable salary calculated?
As the Remuneration paid Rs. 4,00,000 is well within the limit as specifies under 40(b) i.e 6,72,000….Calculation of Book Profit.
| PGBP Income | 8,00,000 |
|---|---|
| Add: Remuneration Add: Interest Paid @15% | 4,00,000 3,50,000 |
| Less: Interest @12% (Allowable) | 2,80,000 |
What happens to a partner’s basis in a partnership?
To the extent that the partner merely withdraws his or her previously taxed investment in a partnership, there is no tax impact other than a reduction of the partner’s basis in the partnership interest.
How does a partner contribute to a partnership?
When the partnership is formed, each partner should contribute cash or noncash property to the partnership, thus creating basis in the partnership. Going forward, income and further cash or noncash contributions increase a partner’s basis, and losses and distributions of cash or noncash property to a partner decreases a partner’s basis.
How does qualified nonrecourse financing increase partner’s basis?
Increases. The partner’s basis is increased by the following items: The partner’s additional contributions to the partnership, including an increased share of, or assumption of, partnership liabilities. The partner’s distributive share of taxable and nontaxable partnership income.
How is bank interest treated in a partnership?
The Partnership LLP also receives some bank interest which is received gross. My understanding is that for 2012/13 the bank interest should be treated on the same basis period as the trading income.
