Partners ordinarily contribute services, as well as capital, for the purpose of producing partnership profits. The partnership agreement may provide that one or more of the partners will receive payments for a salary, payments for use of capital, or interest on capital contributions, irrespective of whether the partnership has ordinary net income or loss. Such payments are called guaranteed payments.

1. a. 

   The guaranteed salary of a partner is allowed as a business deduction in computing partnership income.

2. b. 

   The receiving partner is not considered an employee of the partnership.

3. c. 

   Guaranteed salary payments are not “wages” but NESE.