Exempt from 940?

[Snaggletooth]

In my state, a Partnership cannot cover the partners with Unemployment Insurance, thus partners' salaries are exempt from Tennessee SUTA.

However, does this exemption from SUTA also translate into an exemption from FUTA? Are partners' salaries exempt from FUTA?

There is another issue lurking around the corner. If FUTA is NOT exempt, then it's full rate is 6.2% and the state exemption of 5.4% is not available. Under this scenario, the partnership has not received any monetary benefit whatsoever from being SUT exempt.

Thanks in advance - Snag

[BOB W]

To the best ......

..... of my knowledge a partner is no different the a sole proprietor, no suta no futa.

[lsmith]

940 exemption

A 940 is for employees. Members of a partnership pay SE Tax, Not employee tax.

[Jiggers]

940 Exemption

Agree, partners do not pay 940 (FUTA) tax nor SUTA. Not even on their guaranteed payments.

You should not be issuing W-2's to partners.

Only employees get W-2's, and only the partnership pays FUTA and SUTA on employees only, based on those W-2's.

[Snaggletooth]

W-2s to Partners

Jiggers, the reason for issuing W-2s to partners is psychological.

They can deal better with regular paychecks, and paying in taxes
from their FIT withheld. They have been able to avoid draws and
they are such that they would never hold back to make estimated
payments.

Sometimes the discipline of a weekly paycheck has phychological
advantages when they don't have experience drawing and taxing
themselves as owners.

[Jiggers]

Still wrong to issue W-2's to partners.

Jiggers, the reason for issuing W-2s to partners is psychological.

They can deal better with regular paychecks, and paying in taxes
from their FIT withheld. They have been able to avoid draws and
they are such that they would never hold back to make estimated
payments.

Sometimes the discipline of a weekly paycheck has phychological
advantages when they don't have experience drawing and taxing
themselves as owners.

Snag, I agree about the partners not paying in estimates because of lack of discipline. However, it is still wrong to issue W-2's to partners.

[Taxref]

W2s to Partners

I agree with Jiggers that W2s are not to be issued to partners. In addition to being fundamentally incorrect, the potential for real problems exists if the partners have retirement plans.

[JG EA]

Old idea

Jiggers, the reason for issuing W-2s to partners is psychological.

They can deal better with regular paychecks, and paying in taxes
from their FIT withheld. They have been able to avoid draws and
they are such that they would never hold back to make estimated
payments.

Sometimes the discipline of a weekly paycheck has phychological
advantages when they don't have experience drawing and taxing
themselves as owners.

Snag,
ST made this suggestion a long time ago. What about printing out 12 1040 ES payments (with the 4 appropriate dates on them) and paying in ES payments as they go? That way their taxes are paid, they can take a weekly "paycheck" and everyone is happy.

[Snaggletooth]

Alas, Poor Yorick

JG, a very thoughtful suggestion but fails the human element.
Works fine for tax-savvy people.

This idea requires them to write the government an estimated check.
My idea requires them to write THEMSELVES a payroll check.
Which would you think appeals to them more?

I'm aware my payroll idea is fraught with tentacles, but with
these folks, it solves more problems than it creates.

While reading a while ago, I had to entertain a statement
that "The child is father of the man." Forgive me, but in this
instance I must add to the list of late-night antitheses,
"Wrong is better than right."

Thanks, Jiggers, and others for warning me of the folly of my ways.
Just because I don't take your advice, don't think it's unappreciated.

[JG EA]

Ok

If they write themselves a paycheck have them figure the taxes and tell them they have to deposit the taxes and sign them up for EFTPS. But instead of it being a 941 payment it is a 1040ES payment.

What is the difference except then they don't have to pay 940 taxes.

You could even make up a form for them for the year end and tell them it is a guaranteed payment statement (explaining what is on their K-1).

[S T]

JG has the right idea

Snags,

I have had to do this for several of my small business clients. They write themselves a draw check (or what ever lable you would like to use) and at the same time write a check to the government. This is done monthly or whatever schedule you like.

Aren't your clients just interested in what their "take home pay" is??

Works well, everyone, including me is "happy" at the end of the year.

Sandy