Reasonableness Of Guaranteed Payments

Reasonable compensation for members and the related payroll taxes is a "hot topic" with Congress and the IRS. Because member's guaranteed payments are subject to FICA taxes, it is possible that Congress will try to pass legislation to force members to pay more in "payroll" taxes. The IRS may try to assert that all business LLC income is taxable for self-employment taxes. Making guaranteed payments of a reasonable amount may help beat the IRS's contention. The rules on whether LLC members are subject to self-employment taxes on LLC profits (the amount of income left after guaranteed payments) are in a state of flux. The current IRS thinking is that if the member services for the LLC for more than 500 hours per year, or is liable for LLC debts, or has authority to contract on behalf of the LLC, they are subject to self-employment taxes. Please let us know if this could apply to any of your LLC members and you would like some additional information regarding this issue.