This, in itself is unique, and puts the burden on the member/partner to be responsible for their own tax payments. But another area where people get tripped up is how to account for these GPPs. The GPPs are actually treated as an expense on the Income Statement (aka P&L). They are not “capital withdrawals”, “owner draws”, “distributions” or any other term that implies that the money is coming from the equity of the business (reported on the Balance Sheet). They are literally compensation for service (albeit within an entity where they are members/partners).
I’ve talked with people that get confused about this because some of the top (the top) payroll systems out there don’t really do a good job of elucidating this difference. Payroll companies (I won’t name names but pick any) didn’t design their systems to pay members of LLCs, they designed their systems to pay employees. So, oftentimes their work-arounds to pay and report GPPs to members/partners include terms like “owners draws” and the like. Reminder: GPPs are NOT Owner’s Draws, they are Expenses.
If you need help untangling this type of issue or any other type of issue, please comment and/or reach out by email.