topic If a Partnership is owned by LLC's, can the owners of the LLC's receive a W2 Paycheck from the Partnership? in Business & farm

If a Partnership is owned by LLC's, can the owners of the LLC's receive a W2 Paycheck from the Partnership?

nhinnen — Tue, 31 Dec 2019 17:43:09 GMT

Re: If a Partnership is owned by LLC's, can the owners of the LLC's receive a W2 Paycheck from the Partnership?

Anonymous_ — Tue, 31 Dec 2019 18:02:59 GMT

No, members of LLCs and partners in partnerships are generally considered to be self-employed (not employees of the LLCs or partnerships) and receive K-1s, not W-2s.

If the LLCs are single-member LLCs (without elections to be taxed as corporations), then they are disregarded entities and each member is considered to be self-employed and reports income and expenses on Form 1040, Schedule C.

Re: If a Partnership is owned by LLC's, can the owners of the LLC's receive a W2 Paycheck from the Partnership?

Anonymous — Tue, 31 Dec 2019 19:30:22 GMT

I agree with tagteam. but why would you want to do this? maybe if we understood your goal, we could suggest alternatives.

Re: If a Partnership is owned by LLC's, can the owners of the LLC's receive a W2 Paycheck from the Partnership?

Rick19744 — Tue, 31 Dec 2019 21:50:05 GMT

I also agree with what has been stated based on the very brief facts.

The facts don't specify whether the LLC's which are partners, are single member LLC's or multi-member LLC's.

Working members / partners are paid a guaranteed payment and this is reported separately on the respective K-1. The difference is that no withholding occurs. All taxes are paid at the individual level.

Additional facts would be good if these responses do not address your question.

Re: If a Partnership is owned by LLC's, can the owners of the LLC's receive a W2 Paycheck from the Partnership?

nhinnen — Wed, 01 Jan 2020 15:14:46 GMT

The LLC's are each owned by a husband wife team. Three LLCs each with it's own owners. We set this up to have another layer between the Partnership and the individual owners of the partnership so the individuals didn't directly own the partnership. Everything from the Partnership flows through the LLCs. I was hoping since the individuals indirectly own the partnership, they could receive the paychecks with W2 and withhold taxes, so individual owners wouldn't have to deal with figuring out taxes

Re: If a Partnership is owned by LLC's, can the owners of the LLC's receive a W2 Paycheck from the Partnership?

Carl — Thu, 02 Jan 2020 00:22:56 GMT

When it comes to federal taxes, the only difference between an LLC (single or multi) and a partnership, is the spelling. (Literally!) The IRS considers both types to be disregarded entities. Under no circumstances and with no exceptions will the owner of a disregarded entity issue themselves a W-2, 1099-MISC.

For a partnership or multi-member LLC, each owner will be issued a K-1 which each owner will need in order to complete their individual personal 1040 tax returns.

Do not confuse this with a multi-member LLC that has elected to be "treated like a S-Corp or C-Corp". This election is moot in your case, as if you had made that election, you would know it and would have told us.

Re: If a Partnership is owned by LLC's, can the owners of the LLC's receive a W2 Paycheck from the Partnership?

Rick19744 — Fri, 03 Jan 2020 23:19:43 GMT

Treasury issued regulations in 2016 that addressed single-member LLC's, that are disregarded, that owned an interest in a partnership. The regulations provide that a disregarded SMLLC (one in which no check the box election has been made), is ignored for purposes of determining whether the disregarded entity is able to receive wages and treated as an employee; no wages / guaranteed payments only.

The preamble to these regulations stated that commentators wanted to know the impact on tiered partnerships and whether an individual owning an interest in a tiered structure can be treated as an employee at the upper tier level. Treasury asked for comments related to tiered structures, but have not provided any additional guidance in this area. As such, it is not worth taking the risk. Pay out guaranteed payments.

Re: If a Partnership is owned by LLC's, can the owners of the LLC's receive a W2 Paycheck from the Partnership?

Critter — Fri, 03 Jan 2020 23:27:43 GMT

Putting in an LLC for extra protection/layer between you & anyone trying to sue the partnership is not worth the paper it is written on....it is wiser to pay for a good insurance policy on what I suspect are rental properties in the business.