Schedule K-1 Tax Form: What the K1 Means for S Corp and Partnership Owners

At FreelanceAtlas, we help freelancers understand the tax forms that come with owning a business. This guide goes through both K-1s box group by box group, shows where each number lands on your return, and works out the tax on the same $90,000 of profit through a partnership and through an S corporation. If you are still deciding on a structure, read S Corp for Freelancers: When the Tax Savings Are Real and Self-Employment Tax Explained: Where That 15.3% Actually Goes first.

This article is general information, not tax advice. The examples use 2026 federal figures for a single filer with simplified assumptions, and how you report a K-1 depends on your entity, your role in it and your other income. Confirm the reporting for your own K-1 with a CPA or enrolled agent.

What the K1 Tax Form Is and Who Gets One

Schedule K-1 belongs to the return of a pass-through business. The business files its own return, but it generally pays no federal income tax. Its profit is divided among the owners, and each owner pays tax on their share. The Partner’s Instructions for Schedule K-1 (Form 1065) put it this way: “Although the partnership generally isn’t subject to income tax, you may be liable for tax on your share of the partnership income, whether or not distributed.”

You receive a K-1 if you are one of these owners:

• A partner in a partnership. This includes members of a multi-member LLC. The IRS page on LLCs filing as a corporation or partnership says a domestic LLC with at least two members “is classified as a partnership for federal income tax purposes unless it files Form 8832 and elects to be treated as a corporation.”
• A shareholder in an S corporation. This includes an LLC owner who filed Form 2553 so the LLC is taxed as an S corporation. That LLC files Form 1120-S and issues a K-1 from it, even if it has one owner.
• A beneficiary of an estate or trust. Those come from Form 1041 and are not covered here.

A one-person LLC with no election does not issue a K-1. Its profit goes straight onto your Schedule C, as covered in Schedule C Instructions for Freelancers: A Line-by-Line Guide for 2026. A C corporation does not issue K-1s either: the same IRS page notes that “there are no flow-through items to a 1040 or 1040-SR from a C corporation return.”

The K-1 stays in your records. The partner instructions say: “Keep it for your records. Don’t file it with your tax return unless you’re specifically required to do so.” The business files its own copy with the IRS, which is how the IRS matches your return against the business’s numbers.

Partnership K-1 vs S Corp K-1 at a Glance

Both forms report the same kinds of income, but the box numbers and the tax treatment differ. For an owner who works in the business:

The box numbers in this guide come from the 2025 forms, issued in 2026. Check the form you receive, because the IRS can add codes or move items between years.

Schedule K-1 (Form 1065): What Each Box Group Means

The partnership K-1 has three parts. Parts I and II identify the business and you. Part III holds the numbers you report.

Part I and Part II: The Partnership and Your Share

• Items A to F. The partnership’s EIN, name and IRS center, then your tax ID and address.
• Item G. Two checkboxes: “General partner or LLC member-manager” and “Limited partner or other LLC member.” This box matters for self-employment tax, covered below.
• Item J. Your percentage shares of profit, loss and capital at the start and end of the year.
• Item K1. Your share of the partnership’s liabilities.
• Item L. Your capital account: the starting balance, what you contributed, your share of the year’s income, your withdrawals and distributions, and the ending balance.

Item L is not your basis. The partner instructions explain that your adjusted basis “includes the partner’s share of partnership liabilities,” while the capital account in item L does not. You keep your own basis record with the worksheet in those instructions.

Part III: Boxes 1 to 23

• Boxes 1 to 3. Ordinary business income and rental income. For a freelance business, box 1 holds most of the profit.
• Boxes 4a to 4c. Guaranteed payments for services, for capital, and the total. The instructions define them as “payments made by a partnership to a partner that are determined without regard to the partnership’s income.” A fixed monthly draw promised to one partner for doing the work is a common example.
• Boxes 5 to 11. Portfolio and other income: interest, dividends (6a ordinary, 6b qualified), royalties, capital gains (8 short term, 9a long term), section 1231 gain and other income.
• Boxes 12 and 13. The section 179 deduction and other deductions.
• Box 14. Self-employment earnings. Code A is net earnings from self-employment, code B is gross farming or fishing income, and code C is gross nonfarm income for the optional method.
• Boxes 15 to 18. Credits, a checkbox showing a Schedule K-3 with international items is attached, alternative minimum tax items, and tax-exempt income and nondeductible expenses.
• Box 19. Distributions, meaning the cash or property the partnership paid out to you during the year.
• Box 20. Other information. Code Z carries the Section 199A details you need for the qualified business income (QBI) deduction.
• Boxes 21 to 23. Foreign taxes, plus two flags for businesses with more than one activity.

Schedule K-1 (Form 1120-S): What Each Box Group Means

The S corporation K-1 uses the same layout with different numbering. Part I describes the corporation. Part II shows you, including your current-year allocation percentage (item G) and your shares (item H). Part III holds the amounts:

• Boxes 1 to 3. Ordinary business income and rental income.
• Boxes 4 to 10. Interest (4), dividends (5a ordinary, 5b qualified), royalties (6), capital gains (7 short term, 8a long term), section 1231 gain (9) and other income (10).
• Boxes 11 and 12. The section 179 deduction and other deductions.
• Boxes 13 to 15. Credits, the Schedule K-3 checkbox and alternative minimum tax items.
• Box 16. Items affecting shareholder basis. Code D is distributions.
• Box 17. Other information. Code V carries the Section 199A details for the QBI deduction.
• Boxes 18 and 19. Flags for more than one activity.

There is no self-employment box. The Shareholder’s Instructions for Schedule K-1 (Form 1120-S) say: “Your share of S corporation income isn’t self-employment income and it isn’t subject to self-employment tax.” If you work in your own S corporation, your pay for that work arrives on a W-2, and the K-1 shows only the profit left after your salary.

Where K-1 Numbers Go on Your Form 1040

The table covers the boxes a freelancer who works in the business sees most often. “Works in the business” means you materially participate, which the IRS tests with hours and involvement. If you do not, box 1 income is passive and goes in different columns.

If you get K-1s from more than one business, the partner instructions say to “report items from each partnership’s Schedule K-1 on a separate line 28 of Schedule E.” For box 14, the Schedule SE instructions say general partners “should reduce this amount by certain expenses before entering it,” such as unreimbursed partnership expenses you deducted. And if you are an S corporation owner, your W-2 salary goes on Form 1040, line 1a, like any other wages, while the K-1 profit goes on Schedule E.

How Much Tax You Pay on K-1 Income

There is no separate K-1 tax rate. Your share is added to your other income and taxed at your normal brackets, after any QBI deduction, and a partnership share also carries self-employment tax. Nothing is withheld from a K-1 share, so most owners cover the tax with quarterly estimated payments.

Here is a worked example. Say you are a single filer who owns half of a two-person design LLC taxed as a partnership. Your 2026 K-1 shows $90,000 in box 1 and $90,000 in box 14, code A, and you have no other income.

1. Net earnings from self-employment. $90,000 x 92.35 percent = $83,115, as Schedule SE requires.
2. Self-employment tax. Social Security is $83,115 x 12.4 percent = $10,306, well under the 2026 wage base of $184,500 from IRS Topic 751. Medicare is $83,115 x 2.9 percent = $2,410. The total is $12,716.
3. Deductible half. $12,716 / 2 = $6,358, which you deduct on Schedule 1.
4. Adjusted gross income. $90,000 – $6,358 = $83,642.
5. Taxable income before QBI. $83,642 – $16,100 standard deduction = $67,542.
6. QBI deduction. The Instructions for Form 8995 reduce QBI by the deductible part of self-employment tax, so QBI is $83,642. Twenty percent of that is $16,728, and 20 percent of $67,542 is $13,508. The smaller figure, $13,508, applies.
7. Taxable income. $67,542 – $13,508 = $54,034.
8. Income tax. The 2026 single table in Revenue Procedure 2025-32 charges $5,800 plus 22 percent of the amount over $50,400. $54,034 – $50,400 = $3,634, and 22 percent of that is $799, so the tax is $6,599.
9. Total federal tax. $12,716 + $6,599 = $19,315, which is 21.5 percent of the $90,000 share. Our self-employment tax calculator runs the same steps on your own share.

If part of your share had come as guaranteed payments in box 4a, that part would also sit in box 14, code A, so the self-employment tax would not change. The QBI deduction would shrink, though, because the Form 8995 instructions list “Amounts received as guaranteed payments” among the items that are not QBI. For how this tax fits into a savings plan, see How Much to Set Aside for Taxes on 1099 Income in 2026, which uses the same 2026 figures.

Self-Employment Tax: Partnership K-1 vs S Corp K-1

For a partnership or multi-member LLC, the IRS LLC page says: “Generally, members of LLCs filing Partnership Returns pay self-employment tax on their share of partnership earnings.” Box 14, code A collects that amount. For general partners, it includes guaranteed payments and their share of ordinary business income.

Limited partners are treated differently. The Instructions for Form 1065 say “Limited partners treat as self-employment earnings only guaranteed payments for services they actually rendered to, or on behalf of, the partnership.” They then add: “whether a partner qualifies as a limited partner for purposes of self-employment tax depends on whether the partner is considered a limited partner under section 1402(a)(13).” A freelancer who does the client work in a two-person LLC should plan on self-employment tax on the full share and ask a CPA before treating any of it as exempt.

For an S corporation, the K-1 share carries no self-employment tax. The trade-off is that you must pay yourself a salary first. The IRS page on S corporation compensation says S corporations “must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made.” That salary is taxed like any paycheck: 6.2 percent Social Security and 1.45 percent Medicare from you, and the same again from the corporation, according to Topic 751.

The Same $90,000 Through an S Corporation

Now say the business is your own S corporation, it earns $90,000 before paying you, and you set your salary at $50,000. You are the same single filer with no other income.

• Your share of payroll tax. $50,000 x 6.2 percent = $3,100 for Social Security and $50,000 x 1.45 percent = $725 for Medicare, so $3,825 is withheld.
• The corporation’s share. Another $3,825, which the corporation deducts.
• K-1 box 1. $90,000 – $50,000 salary – $3,825 employer tax = $36,175.
• Taxable income before QBI. $50,000 + $36,175 = $86,175, minus the $16,100 standard deduction, is $70,075.
• QBI deduction. Only the K-1 profit counts, because the Form 8995 instructions exclude “Amounts received as reasonable compensation from an S corporation.” Twenty percent of $36,175 is $7,235, which is smaller than 20 percent of $70,075 ($14,015), so $7,235 applies.
• Income tax. $70,075 – $7,235 = $62,840 of taxable income. $5,800 plus 22 percent of $12,440 ($2,737) is $8,537.
• Total federal tax. $3,825 + $3,825 + $8,537 = $16,187, or 18.0 percent of the $90,000.

The S corporation route comes out $3,128 lower ($19,315 – $16,187) before its extra costs. Those include federal unemployment tax, which Publication 15 puts at 6.0 percent of the first $7,000 of wages, or 0.6 percent after the full state credit ($42 here), plus state unemployment tax, a payroll service and preparation of Form 1120-S. A lower salary also means lower Social Security earnings on your record. If the salary is too low for the work you do, the IRS can reclassify distributions as wages. How to Pay Yourself as a Freelancer or LLC Owner: Draws vs Salary covers setting the salary, and S Corp vs LLC: Which One a Freelancer Needs compares the two structures in full.

Does K-1 Income Count as Earned Income?

It depends on which K-1. For retirement plans, Publication 560 says: “Net earnings include a partner’s distributive share of partnership income or loss (other than separately stated items, such as capital gains and losses). They don’t include income passed through to shareholders of S corporations.”

So a partner’s box 14 earnings count as earned income for a SEP IRA or solo 401(k). An S corporation owner’s K-1 profit does not. Only the W-2 salary does. In the S corporation example above, plan contributions would be figured from the $50,000 salary, not from the $86,175 total. The contribution formulas are in Retirement Accounts for Freelancers: SEP IRA vs Solo 401(k) in 2026.

Distributions, Losses and Basis

Distributions are the money you take out, and they are not the same as income. You are taxed on your share of profit whether you took it out or not. A distribution reduces your basis, your running investment in the business, and is taxable only when it is larger than that basis. The S corporation instructions say that if distributions “exceed the basis of your stock, the excess is treated as capital gain.” The partner instructions treat cash beyond basis the same way, as “gain from the sale or exchange of your partnership interest.”

Say you put $5,000 into your S corporation when you set it up. Your K-1 profit of $36,175 raises your stock basis to $41,175. You take $30,000 in distributions, which leaves $11,175 of basis. Had you taken $45,000, the $3,825 above your $41,175 basis would be a capital gain on Schedule D.

Losses run the other way. The partner instructions list the limits “in which you must apply them” as “the basis limitations, the at-risk limitations, the passive activity limitations, and the excess business loss limitations.” A loss larger than your basis is not lost. It carries forward to a year when you have basis again.

The shareholder instructions say “You are responsible for keeping the information needed to figure the basis of your stock” and that you “should generally use Form 7203” to figure it. Partners use the basis worksheet in the partner instructions.

K-1 Deadlines and Late Filing Penalties

The Form 1065 instructions say a partnership “must file Form 1065 by the 15th day of the 3rd month following the date its tax year ended,” and the Instructions for Form 1120-S use the same rule. For a calendar year, that is March 15. The K-1s are due with it: “Schedule K-1 must be provided to each partner on or before the day on which the partnership return is required to be filed,” and the 1120-S instructions say the same for shareholders.

The dates for 2026 returns:

• March 15, 2027. Forms 1065 and 1120-S due, with K-1s to owners.
• September 15, 2027. Extended due date if the business files Form 7004 by March 15. The Instructions for Form 7004 say the automatic extension “is generally 6 months.” Your K-1 can arrive as late as this date.
• April 15, 2027. Your own Form 1040 is due. If your K-1 has not arrived, the IRS page on extensions says an extension “gives you until October 15 to file without penalties,” but you still pay what you expect to owe by April 15.

What a Late Partnership or S Corp Return Costs

The penalty is figured per owner, per month. Revenue Procedure 2025-32 sets it at $260 for any partnership or S corporation return “required to be filed in 2027,” for up to 12 months. (It was $255 for returns due in 2026.) Say a two-member LLC files its 2026 Form 1065 four months late without an extension: $260 x 2 partners x 4 months = $2,080. The IRS has announced automatic penalty relief for some filers with three prior years of on-time filing and payment, so check whether your return qualifies. An S corporation that owes tax also pays 5 percent of the unpaid tax for each month, up to 25 percent, according to the 1120-S instructions. Separately, the Form 1065 instructions list a $340 penalty for each K-1 not furnished on time or furnished with wrong information.

If an “Amended K-1” arrives after you filed and the numbers changed, you may need to amend your return.

What to Check When Your K-1 Arrives

Errors on a K-1 carry straight into your return. Before you enter it, check:

• Your role. On a partnership K-1, item G matches how you work in the business. A working member marked as a limited partner may show only guaranteed payments, or nothing, in box 14.
• Your share. The percentages in item J, or the allocation percentage in item G of an S corporation K-1, match your operating agreement.
• Box 1. The figure is close to your share of profit in your own books.
• Distributions. Box 19, or box 16 code D, matches what you took out of the business account.
• QBI statement. The Section 199A details are attached (box 20 code Z, or box 17 code V).
• Final K-1. The box at the top is checked only if the business closed or you left it.

If K-1 profit is now your main pay, set your income target with the tax share built in. Our income goal planner works backward from what you want to keep.

Conclusion

A K-1 is your share of a partnership’s or S corporation’s results, and you report it whether or not you took the money out. Partnership K-1 income usually carries self-employment tax through box 14. S corporation K-1 income does not, but the owner must take a reasonable W-2 salary first. On the same $90,000 of profit in 2026, our examples came to $19,315 of federal tax through a partnership and $16,187 through an S corporation, before the S corporation’s payroll and filing costs.

Once you know the destinations, the reporting is mechanical: box 1 to Schedule E line 28, box 14 code A to Schedule SE, the QBI details to Form 8995, and distributions against your basis record. Expect 2026 K-1s by March 15, 2027, or by September 15 if the business extends, and extend your own return if one is late.

Key Takeaways

• Schedule K-1 comes from Form 1065 (partnerships and multi-member LLCs) or Form 1120-S (S corporations), and you keep it instead of filing it.
• Box 1 ordinary business income from either K-1 goes on Schedule E, line 28, column (k) when you materially participate.
• Partnership K-1 earnings in box 14, code A are subject to 15.3 percent self-employment tax on 92.35 percent of the amount, while S corporation K-1 income has no self-employment tax.
• In our 2026 example, a $90,000 partnership share produced $19,315 of federal tax, and the same profit through an S corporation with a $50,000 salary produced $16,187.
• For calendar-year businesses, Forms 1065 and 1120-S and their K-1s are due March 15, 2027, or September 15, 2027 with Form 7004.
• A late partnership or S corporation return due in 2027 can cost $260 per owner per month, for up to 12 months.

Frequently Asked Questions

What is the K1 form for taxes?

Schedule K-1 is the statement a partnership (Form 1065) or S corporation (Form 1120-S) gives each owner to show that owner’s share of income, deductions and credits for the year. The business files a copy with the IRS. You keep yours and copy its numbers onto your Form 1040, mostly on Schedule E, line 28. Members of a multi-member LLC get one too, because the IRS treats that LLC as a partnership by default.

How much tax do you pay on K1 income?

K-1 income has no special rate: it is taxed at your normal brackets, and a partnership share also carries self-employment tax. In our 2026 example, a single filer with a $90,000 partnership share and no other income owed $12,716 of self-employment tax and $6,599 of income tax, a total of $19,315 or 21.5 percent. The same profit through an S corporation with a $50,000 salary came to $16,187.

Does a K1 count as earned income?

A partner’s self-employment earnings in box 14, code A count as earned income for retirement plans such as a SEP IRA or solo 401(k). An S corporation K-1 does not: IRS Publication 560 says net earnings “don’t include income passed through to shareholders of S corporations.” For an S corporation owner, only the W-2 salary counts as earned income.

Do I need to report a K-1 on my taxes?

Yes. You report the amounts on your own return even if the business paid you nothing, because the IRS says you may be liable for tax on your share “whether or not distributed.” You do not attach the K-1 itself unless the instructions require it. The business sends the IRS its own copy of your K-1.

What if my K-1 has not arrived by April 15?

A business that files Form 7004 can send K-1s as late as September 15, 2027 for 2026 returns. If yours is not in by April 15, 2027, request an extension for your own return, which moves your filing date to October 15. The extension does not cover payment, so estimate your share and pay what you expect to owe by April 15 to limit penalties and interest.