Taxes Paid by Partnerships

Income Taxes, Self-employment Taxes, and State Taxes

Taxes Paid by Partnerships
Taxes Paid by Partnerships. Hinterhaus Productions/Getty Images

Taxes Paid by Partnerships

A partnership is a business operated by several owners, known as partners. A partnership is a special type of business entity, because of its ownership structure.

The partnership itself does not pay federal income tax; instead the income tax is passed through to the others. This type of business is considered a "pass-through" entity, because the taxes of the partnership are passed through to the owners on their personal tax returns.

This article explains more about how partners pay federal income taxes, how the partnership reports federal income taxes, and other taxes paid by partnerships alike with other types of businesses. 

Federal and State Income Taxes

Since the partnership income is passed through to the owners, each owner must report his or her percentage share of income on the individual Form 1040 for federal income taxes.

  • First, the partnership files an information-only return on Form 1065 and submits it to the IRS.
  • Then each partner's share of the profit or loss of the partnership is recorded on a Schedule K-1.
  • The K-1 information for each partner is reported on Line 17 of the partner's Form 1040.

Most states use the federal information to determine total income for state tax determination.

Self-employment Taxes

Partners are considered self-employed individuals (not employees). Each partner must pay self-employment taxes based on the information on Schedule K-1, indicating his or her share of the income of the partnership.

Self-employment tax is included in each partner's Form 1040 for federal taxes, calculated using Schedule SE,, and the total self-employment tax liability is included on line 57 of Form 1040.

Other Employment Taxes

If a partnership has employees, the business must pay employment taxes, including withholding and reporting federal and state income taxes, paying and reporting FICA (Social Security and Medicare) taxes, worker's compensation taxes, and unemployment taxes.

Property Taxes

If the partnership owns a building or other real property, property taxes are required to be paid on this property.

State Sales, Excise, and Franchise Taxes

Partnerships are required to pay state sales taxes and excise taxes in the same manner as other business types. Check with your state department of revenue for more information on sales and excise taxes. Partnerships are not typically liable for franchise taxes, as these are levied by states on corporations.