In some cases, all the members of an LLC may be investors only and not managers. The business may hire an outside non-member 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 member (aka owner), their income is just like that of an employee in any business.
The salary or wages of a non-member general manager is subject to the employee portion of FICA and Medicare tax only and the business (LLC) is responsible for the payroll taxes (matching FICA and Medicare tax and unemployment taxes). Of course, the non-member general manager is also subject to federal and state income taxes based on their marginal tax rate as well.
As a non-member 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 non-member 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-member general manager as well the associated payroll taxes are expenses to the business that will lower its taxable income.
Are you paying your non-member general manager of your limited liability company 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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