Did you know that in 2022, partnerships distributed over $2.5 trillion in net income through Schedule K-1s? This staggering amount underscores the critical role of partnerships and pass-through entities in the U.S. economy.
If you’re a business owner or partner in a partnership or S corporation, understanding the Schedule K-1 tax form is essential for your tax filings. In this article, learn what a Schedule K-1 is, who needs to file it, and how it affects your tax return, helping you avoid costly mistakes.
What Is a Schedule K-1 Tax Form and Who Needs It?
What Is a Schedule K-1 and How Does It Work?
A Schedule K-1 form is a tax document used to report your distributive share of partnership income, losses, deductions, and credits. If you’re a partner in a partnership or a shareholder in an S corporation, this form is how the IRS ensures you report your share of the entity’s earnings on your individual tax return (Form 1040 or 1040-SR).
Unlike Form W-2, which reports employee wages, Schedule K-1 is an important IRS tax document used to report pass-through income. This means the entity itself doesn’t pay federal tax—instead, the income “passes through” to you, and you must report it on your income tax return.
Here’s how it works:
- Partnerships file Form 1065 with the IRS to report total income, expenses, and deductions.
- Each partner receives a Schedule K-1, which details their share of income for the tax year.
- S corporations issue Schedule K-1 (Form 1120-S) to shareholders, and trusts issue a K-1 from Form 1041 to beneficiaries.
- You must file a tax return and report your income on Schedule E if you received a K-1.
Taxpayers typically don’t file K-1 forms—instead, partnerships, S corps, and trusts issue a Schedule K-1 to each partner or beneficiary, who then reports the income on their tax return.
Who Needs to File a Schedule K-1?
If you’re involved in any of the following, you will receive a K-1 and must report it:
- Partnerships (Form 1065) – If you’re a partner in a business, your partnership tax return will generate a K-1 for you.
- S Corporations (Form 1120-S) – Shareholders receive a K-1 to report their portion of corporate earnings.
- Trusts & Estates (Form 1041) – Beneficiaries receive a K-1 to report distributed income.
If you’re a limited partner, your K-1 income is considered earned income only if you’re actively involved. Otherwise, it’s passive income, which isn’t subject to self-employment tax.
Partnerships must file Form 1065 with the IRS and issue K-1s to each partner by March 15 (or September 15 if on extension).
Further Reading: Discover essential insights on the Schedule K-1 tax form
How Does Schedule K-1 Affect Your Tax Return?
Is Schedule K-1 Income Considered Earned Income?
Whether your income reported on Form K-1 is considered earned or passive depends on your role in the business:
- Earned income – If you’re an active partner providing services, your distributive share of partnership income is subject to self-employment tax.
- Passive income – If you’re a limited partner or receive net rental real estate income, you won’t owe self-employment tax on their distributive share.
Earned income affects self-employment tax, Social Security, and Medicare obligations, while passive income doesn’t trigger self-employment tax.
Does a Schedule K-1 Impact Your Self-Employment Tax?
Yes—if you’re an active partner in a partnership for the tax year, you must pay self-employment tax on guaranteed payments and your distributive share of partnership income. The self-employment tax rate is 15.3%:
- 12.4% for Social Security (on income up to $168,600 for tax year 2024).
- 2.9% for Medicare (plus 0.9% additional tax if income exceeds $200,000).
If your K-1 reports guaranteed payments, you must pay self-employment tax on those amounts, even if your share of income is negative.
To avoid IRS penalties, make estimated tax payments each quarter if your K-1 income is subject to self-employment tax.
Step-by-Step Guide to Filing a Schedule K-1
How to Read and Report a Schedule K-1?
Your Schedule K-1 form is broken into three sections:
- Part I – Information about the entity
- Partnership’s name, EIN, and entity’s tax year end
- Type of business (Partnership, S corp, or Trust)
- Part II – Partner’s Information
- Your SSN, address, and share of income
- Your profit, loss, and capital percentages
- Part III – Income, Deductions, and Credits
- Ordinary business income (Line 1) – If active, this is subject to self-employment tax
- Net rental real estate income (Line 2) – Usually not subject to self-employment tax
- Capital gains (Line 9a) – Report on Form 1040, Schedule D
- Tax credits (Line 15) – May reduce your income tax liability
Where to Report K-1 Income on Your Tax Return
- Schedule E (Form 1040) – For partnership and S corp income.
- Schedule SE (Form 1040) – If you pay self-employment tax on earned income.
- Form 6251 – If Alternative Minimum Tax (AMT) applies.
Check the Partner’s Instructions for Schedule K-1 to see where to report each item of income.
What Are the Deadlines for Filing a Schedule K-1?
- March 15 – Issue a Schedule K-1 to each partner/shareholder.
- April 15 – File your individual tax return using Form 1040.
- September 15 – If the partnership files Form 1065 with the IRS on extension, the K-1 deadline is extended.
If you haven’t received a copy of Schedule K-1 by early April, follow up with the entity—you need this tax document to file your tax return.
Further Reading: Learn how to accurately report your income and contributions
Common Schedule K-1 Mistakes to Avoid
What If You Don’t Receive a Schedule K-1 on Time?
If your K-1 is missing, here’s what to do:
- File an extension (Form 4868) so you don’t miss the deadline.
- Estimate your K-1 income based on last year’s numbers and amend later if needed.
- Contact the entity’s tax advisor—they must provide it.
The IRS gets a copy of Schedule K-1 too. If you don’t report it, expect a tax notice.
How to Avoid Errors on Your Schedule K-1?
Mistakes on Schedule K-1 to report partnership income can trigger audits. Watch for:
- Incorrect ownership percentages – This affects your share of income.
- Guaranteed payments misreported – These are subject to self-employment tax.
- Missed deductions or credits – Could reduce your income tax liability.
Work with a tax advisor to ensure your K-1 tax situation is correct before filing your personal tax return.
Further Reading: Learn how to navigate your partnership tax return
Key Takeaways
- Schedule K-1 is an IRS schedule that reports your share of income, deductions, and credits from a partnership, S corp, or trust—you must include it when you file your individual tax return.
- The type of income on your K-1 matters—earned income is subject to self-employment tax, while passive income is not, affecting how you pay tax.
- Partnerships must file their annual tax return (Form 1065) with the IRS and issue K-1 information to partners by March 15—delays can impact tax season.
- A K-1 is different from Form 1099—while both report income, a K-1 applies to pass-through entities, and a Form 1099 is for independent contractors and other income types.
- Missing or incorrect K-1s can cause tax filing issues—review your tax deduction claims, federal tax obligations, and income details carefully when you file your tax returns.
How can Taxfyle help?
Finding an accountant to manage your bookkeeping and file taxes is a big decision. Luckily, you don't have to handle the search on your own.
At Taxfyle, we connect small businesses with licensed, experienced CPAs or EAs in the US. We handle the hard part of finding the right tax professional by matching you with a Pro who has the right experience to meet your unique needs and will manage your bookkeeping and file taxes for you.
