Page 152

Child Care Assistance Program Policy Manual Issued 07/2023 Self-employment income 6.6.5 All wages, draws, guaranteed payments, or compensation of officers paid to the business owner or a household member is considered earned income and entered in MEC2 as wages. Any other income is considered self- employment income and entered in MEC2 as such. A partnership can be one of these three types: general, limited and limited liability. General Partnership A general partnership has the following major features: • It is formed by two or more general partners • The partners are all liable for any legal actions and debts • It is created by agreement.

General partners have: • Management control • Share the right to use partnership property • Share the profits of the business, usually in predefined proportions, and • Have joint liability for the debts of the partnership.

Limited Partnership A limited partnership is a form of partnership that has one or more general partners and one or more limited partners.

Limited partners are partners that may invest in, but are not directly involved in, the management of the partnership. They also have limited liability to the extent of their investments.

The general partner pays the limited partners the equivalent of a dividend on their investment, the nature and extent of which is usually defined in the partnership agreement.

Limited partnerships are different from limited liability partnerships in which all partners have limited liability.

Limited Liability Partnership A limited liability partnership (LLP) has elements of partnerships and corporations. In a limited liability partnership, all partners have a form of limited liability similar to that of the shareholders of a corporation. However, the partners have the right to manage the business directly, and (in many areas) a different level of tax liability than in a corporation.

A limited liability partnership is for businesses where all investors wish to take an active role in management.

A partnership must file an annual information return (IRS Form 1065 and 1065 Schedule K-1) to report the income, deductions, gains, losses, etc. from its operations. A partnership does not pay income taxes. The profits or losses are “passed through” to its partners. Each partner includes their share of the partnership's income or loss on his or her tax return (IRS Form 1040). Partners are not employees and should not be issued a Form W-2. The partnership must furnish copies of Schedule K-1 (Form 1065) to the partners. S-Corporations S-Corporations are considered self-employment businesses. Income received by the shareholders is countable