In some cases, the partners may be investors only and not managers. The business may hire an outside general manager (employee) to make the day-to-day decisions, and therefore, acts as the manager. In this case, the manager is an employee of the business, but since they are not a partner, their income is just like that of an employee in any business.
The salary or wages of a non-partner general manager is subject to the employee portion of FICA and Medicare tax only and the business (limited partnership) is responsible for the payroll taxes (matching FICA and Medicare tax and unemployment taxes). Of course, the non-partner general manager is also subject to federal and state income taxes based on their marginal tax rate as well.
As a non-partner general manager, they will receive a salary or wage to compensate them as the manager. The business will withhold from their compensation the estimated taxes and make periodic deposits on behalf of the employee to the IRS, state, FICA, and Medicare. The earnings the general manager receives will be reported on a W2 form at the end of the tax year.
The wage or salary paid to the non-partner general manager as well the associated payroll taxes are expenses to the business that will lower its taxable income.
Are you paying your non-partner general manager of your limited partnership properly?
I would like to acknowledge Karen Absher of KSA Financial & Tax Services for her gracious assistance as a reviewer to make sure that the tax issues conveyed in this post were an accurate representation of US tax law.
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