1099 Income for Partner

[Rai401k]

The definition of compensation under the plan document is W-2 however there is self employed income language in it. We use Relius IDP V.S. (See definition of comp below).

1.22 "Basic Compensation" means the Participant's wages as defined in Code §3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for which the Employer is required to furnish the Participant a written statement under Code §§6041(d), 6051(a)(3) and 6052 (Form W 2 wages), as well as amounts that would have been received and includible in taxable compensation but for an election under Code §125(a), Code §132(f)(4), Code §402(e)(3), Code §402(h)(1)(B), Code §402(k), or Code §457(b), plus, effective for Compensation Computation Periods beginning on or after January 1, 2009, Military Differential Pay. Compensation must be determined without regard to any rules under Code §3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code §3401(a)(2)).

Basic Compensation for any Self Employed Individual (with respect to the Employer maintaining the Plan) shall be equal to such individual's Earned Income.

Basic Compensation shall not include amounts paid as Compensation to a nonresident alien, as defined in Code §7701(b)(1)(B), who is not a Participant in the Plan to the extent the compensation is excludable from gross income and is not effectively connected with the conduct of a trade or business within the United States.

The partner is part of an adopting employer of the plan. Would his 1099 income be eligible? He does not receive K-1 only 1099.

[jpod]

Please explain how he is a partner and does not get a k-1.

[mbozek]

Not all partners are equity partners who receive profits from the firm. Law firms have non equity partners who are paid W-2. There may be self employed persons who receive 1099s from the firm who are not eligible to participate in the plan because they are neither employees or partners.

There are many convoluted definitions and rules of employment status created by firms and accountants which only a few key members of the firm are aware of. The managing partner or firm's accountant may need to be consulted to get a correct answer.

[jpod]

If you are a partner in an entity that is a partnership for tax purposes, you must get a k-1, whether "salaried only" or otherwise. He could legitimately be a partner but the partnership is not handling its tax reporting correctly, or he's not a partner. Just trying to get the facts because the initial question is not answerable.