A partnership does not pay income tax on its own profit. It files a return, Form 1065, that tells the IRS what it earned and how that number was split among the owners. Each owner then pays tax on their own share. Schedule K-1 is the document that carries your share from the business to you, and to the IRS.
Two things about this form catch founders out. The first is what you are supposed to do with the copy you receive. Many people assume they must send it to the IRS along with their own return. The instructions say the opposite. The second is that the form looks identical for every partner, so it hides the fact that a foreign partner has an extra layer of tax rules sitting on top of the same piece of paper.
This page explains what the form does, what you do with it, and where the answer changes if the IRS does not count you as a U.S. person.
What the form does
Form 1065 is the return a partnership files. A U.S. LLC with more than one owner is treated as a partnership by default, so most multi-owner LLCs file Form 1065 too, unless they have elected to be taxed some other way.
The partnership prepares one Schedule K-1 for each partner. That K-1 shows the partner's distributive share: the portion of the partnership's income, deductions and credits that the partnership has allocated to that partner. The partnership then does two things with it.
- It files the K-1 with the IRS, as part of the Form 1065 package.
- It furnishes a copy to the partner.
So the IRS already has your K-1 before you do anything. Your job is to use the numbers, not to forward the form.
The Partner's Instructions for Schedule K-1 (Form 1065) say it directly: "Keep it for your records. Don't file it with your tax return unless you're specifically required to do so." You take the amounts from the K-1, put them in the places your own return asks for, and file the K-1 in a drawer.
Read that qualifier. There is a case where the K-1 does get attached, and the instructions point to exactly one: backup withholding, reported in Box 15 with code O. That is the pointer the instructions give. The default is: keep it, do not send it.
One more form to know about. Schedule K-3 is a separate schedule that carries the partnership's items of international tax relevance, including foreign-source income, foreign tax credit information, and inclusions from controlled foreign corporations under sections 951(a) and 951A. It is not part of Schedule K-1. If your partnership has cross-border activity, or has a foreign partner, K-3 is the schedule where that detail lives.
🇺🇸 If the IRS counts you as a U.S. person
The process is straightforward, and it is entirely on you.
- The partnership sends you the K-1. The IRS already has its copy.
- You take the numbers on it and report them on your Form 1040, in the lines the instructions point you to.
- You keep the K-1. You do not attach it.
The point that costs people money is this one: you are taxed on the share the partnership allocated to you, not on the cash the partnership sent you. Those are two different events. A partnership can allocate $40,000 of income to you and distribute nothing, because the business kept the cash to buy inventory. You still report the $40,000. Your tax bill follows the number on the K-1, not the balance in your bank account.
This is the main reason partners argue with their partnerships in March. If the business is going to allocate income it has not distributed, the partners need to know early, because the tax is due whether or not the money arrived.
The second practical point is timing. You cannot finish your own return until the K-1 exists, and the K-1 does not exist until the partnership finishes its books. If you are a partner in a business you do not control, your personal filing date is in someone else's hands.
🌏 If it does not
You receive the same Schedule K-1. The boxes are the same, the codes are the same, and the instruction to keep it rather than file it is the same.
What is different is that the partnership has a job to do before the money ever reaches you. Under IRC § 1446(a), if a partnership has effectively connected taxable income for a tax year and any part of that income is allocable under section 704 to a foreign partner, the partnership "shall pay a withholding tax." The partnership pays that tax to the IRS against your share. The obligation sits on the partnership, not on you.
Two consequences follow.
Your K-1 and your cash will not match. The K-1 reports the income allocated to you. The partnership may have already paid part of that amount to the IRS on your behalf. If you read only the K-1 and only your bank statement, you will not understand where the difference went. Ask the partnership what it withheld and what it filed.
Tax withheld in your name is a payment toward your own U.S. tax. It is not a fee, and it is not the end of the matter. Being withheld on does not, by itself, close your U.S. filing obligation.
We are not quoting a withholding rate or a form number for the section 1446 mechanics on this page. Those details depend on the type of income and on rules we have not verified to the standard we hold ourselves to here. Ask the partnership which forms it is filing for you, and confirm it with a preparer who handles foreign partners.
Finally, Schedule K-3 is more likely to show up when you are in the partnership. Partnerships can be relieved of filing Schedules K-2 and K-3 under a "domestic filing exception," but one of its conditions is that every direct partner is on a list that includes U.S. citizens, resident aliens and specified domestic entities. A direct foreign partner is not on that list, so a partnership with one cannot use the exception. If the partnership tells you a K-3 is coming, do not file without it.
Where the two lanes split
The form itself does not split. The layer on top of it does.
| 🇺🇸 U.S. person | 🌏 Not a U.S. person | |
|---|---|---|
| The form you receive | Schedule K-1 (Form 1065) | The same Schedule K-1 (Form 1065) |
| Do you attach it to your return? | No, unless specifically required (Box 15, code O) | No, unless specifically required (Box 15, code O) |
| Are you taxed on income you were allocated but not paid? | Yes | Yes, on the U.S. connected part |
| Does the partnership take tax out first? | Not normally | Yes. Section 1446 withholding on effectively connected income allocated to you |
| Will the K-1 amount match what you received? | Usually | Often not, because of the withholding |
| Schedule K-3 | Only if the partnership has international items | The partnership cannot use the domestic filing exception if it has a direct foreign partner |
Read the first two rows carefully. They are the same in both lanes, and that is the point. The rule about not filing the K-1 with your return is not a U.S.-person rule. It applies to everyone who receives one.
Common mistakes
🇺🇸 If the IRS counts you as a U.S. person
- Mailing the K-1 in with your Form 1040. The instructions tell you to keep it. The IRS already received its copy from the partnership.
- Reporting only the cash you were paid. You are taxed on the share allocated to you on the K-1, even in a year when the partnership distributed nothing.
- Filing your return before the K-1 arrives, using an estimate, and then having to amend when the real numbers show up.
🌏 If it does not
- Assuming that because the partnership withheld tax under section 1446, your U.S. obligations are finished. Withholding is a payment made in your name, not a substitute for dealing with your own filing.
- Treating the gap between the K-1 number and the cash you received as a mistake by the partnership. The gap is usually the withholding.
- Filing without the Schedule K-3 when the partnership has told you one is coming. The international items are on that schedule, not on the K-1.
FAQ
Do I file Schedule K-1 with my tax return?
Normally no. The Partner's Instructions for Schedule K-1 (Form 1065) say: "Keep it for your records. Don't file it with your tax return unless you're specifically required to do so." The partnership already sent the IRS its copy along with Form 1065. You use the numbers; you keep the paper. For the case where you are specifically required to attach it, the instructions point to backup withholding, reported in Box 15 with code O.
Who prepares my K-1?
The partnership does, as part of preparing Form 1065. You do not fill it in yourself. If the numbers on it look wrong, the correction has to come from the partnership.
Does my single-member LLC send me a K-1?
Not by default. A single-member LLC is a disregarded entity for federal tax purposes unless it elects otherwise, which means it does not file Form 1065 and it does not issue the Schedule K-1 this page is about. The Form 1065 Schedule K-1 comes from a partnership, and a partnership has more than one owner.
One caveat, because it catches people. Schedule K-1 is not a partnership-only form: S-corporations issue their own Schedule K-1 (Form 1120-S), and estates and trusts issue Schedule K-1 (Form 1041). So a single-member LLC that has elected to be taxed as an S-corporation does file a return and does issue a Schedule K-1, to its one shareholder. It is a different K-1 from the one described here.
I never received any cash from the partnership. Do I still owe tax?
Yes, in general. You are taxed on the share of income the partnership allocated to you, which is the number on the K-1. Whether the partnership actually distributed cash to you in that year is a separate question. This is the single most common surprise for new partners.
I am not a U.S. person. Will the partnership still send me a K-1?
Yes. You receive the same Schedule K-1 as everyone else. The difference is that the partnership must also withhold U.S. tax under section 1446 on the share of its U.S. connected income that it allocates to you. Ask the partnership what it withheld.
What is Schedule K-3, and do I need it?
Schedule K-3 is a separate schedule that carries international information, including items relating to foreign transactions and controlled foreign corporations. It is not part of the K-1. If the partnership has cross-border activity, ask whether a K-3 is coming before you file.
Is an S-corporation K-1 the same thing?
It is a different form. This page is about the Schedule K-1 that comes with Form 1065, the partnership return. An S-corporation issues its own version of Schedule K-1. Note one rule before you go looking for it: under IRC § 1361(b)(1)(C), a nonresident alien is not permitted to be an S-corporation shareholder at all. That turns on tax residence, not on your passport, so a resident alien may hold S-corporation shares while a nonresident alien may not.