calculating net income for APP test

[Alex Daisy]

A 401K Plan has 3 partners who get a K-1 to report their income and 5 staff members who's income is reported on a W-2.

How do I calculate the Net Income for the 3 partners for the ADP Test?

For example, they each are showing $100,000 in Box 14 on their Form 1065, Schedule K-1 (Self-employment earnings)

[PensionPro]

Here is a brief (it is not comprehensive) overview from publication 560:

Net earnings from self-employment. For SEP and qualified plans, net earnings from self-employment is your gross income from your trade or business (provided your personal services are a material income-producing factor) minus allowable business deductions. Allowable deductions include contributions to SEP and qualified plans for common-law employees and the deduction allowed for one-half of your self-employment tax.

Net earnings from self-employment do not include items excluded from gross income (or their related deductions) other than foreign earned income and foreign housing cost amounts.

For the deduction limits, earned income is net earnings for personal services actually rendered to the business. You take into account the income tax deduction for one-half of self-employment tax and the deduction for contributions to the plan made on your behalf when figuring net earnings.

Net earnings include a partner's distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). It does not include income passed through to shareholders of S corporations. Guaranteed payments to limited partners are net earnings from self-employment if they are paid for services to or for the partnership. Distributions of other income or loss to limited partners are not net earnings from self-employment.