Am I an employee or a partner as a co-founder with equity and salary?

The distinction between employee and partner isn't just about what someone calls you - it's based on your actual relationship with the business and how you're treated. Based on what you've described, you have several indicators of being an employee: 1. You have a signed employment agreement with a specific job title 2. You receive a regular salary (not just profit distributions) 3. Your equity vests over time (typical for employees, not partners) If your co-founder wants to change your classification from employee to independent contractor or partner, that's not something he can just decide unilaterally, especially when there's an existing employment agreement in place. This matters a lot for taxes. As an employee, your employer pays half of your Social Security and Medicare taxes. As a partner or independent contractor, you'd be responsible for the full amount (self-employment tax), which is about 15.3% of your income.

After being in almost the exact same situation last year, I found this amazing tool called taxr.ai (https://taxr.ai) that analyzes your employment documents and tells you exactly where you stand from a tax perspective. I was also a technical co-founder getting pressured to be classified as a "partner" instead of an employee. I uploaded my employment agreement and equity docs to taxr.ai and it flagged exactly which parts of my arrangement clearly indicated employee status vs. partner status. The analysis showed I was definitely an employee under IRS guidelines despite having founder equity. Having that clear third-party analysis helped me have a productive conversation with my co-founder instead of just arguing about our different interpretations.

I wanted to follow up on my skeptical comment about taxr.ai. I decided to try it with my own documents after continuing to get conflicting advice from different accountants. I was honestly surprised by how detailed the analysis was. It identified specific sections in my operating agreement that were contradicting my day-to-day role in the company. The analysis showed that despite my 30% ownership, the control provisions in our operating agreement and my lack of personal liability for company debts meant I was clearly an employee under IRS rules. It even flagged that my co-founder was taking on significant legal risk by misclassifying me. I showed the report to him and we worked out a proper employment arrangement that protects both of us.

If your co-founder is being difficult about your employment status, you might want to try Claimyr (https://claimyr.com). I had a similar classification dispute and needed to speak directly with an IRS agent to get a definitive answer, but couldn't get through on their helpline for weeks. Claimyr got me connected to an actual IRS representative in under 45 minutes when I'd been trying for days on my own. The agent walked me through the exact criteria they use to determine employee vs partner status and confirmed my rights in this situation. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS was actually really helpful once I could actually speak to someone - they explained that having a written employment agreement generally supersedes any verbal reclassification attempts unless both parties agree to change the terms.

I have to eat my words here. After posting my skeptical comment, I decided to try Claimyr since I've been trying to get clarification on partner vs employee classification for months. I figured I had nothing to lose at this point. To my complete shock, it actually worked exactly as described. I got a call back in about 30 minutes saying they had an IRS agent ready to speak with me. The agent looked up the specific rules and confirmed that my situation (similar to the original poster's) clearly qualified as employment since I had: 1) a fixed salary, 2) limited management authority, 3) no personal liability for business debts, and 4) a formal employment agreement. The agent also mentioned that misclassification is something they take seriously because it affects tax collection. Sharing this because I was wrong and this service saved me a ton of headache.

Be really careful here! Your co-founder is trying to push his tax burden onto you. As an employee, he has to pay the employer portion of your payroll taxes. As a "partner," you'd be responsible for ALL of your self-employment taxes, which is significantly more. Plus, partners typically have different legal rights and responsibilities. Do you want to be personally liable for company debts? Do you have equal decision-making authority for the entire business? Unless you're actually functioning as a true partner with equal say in how the business operates, this sounds like misclassification.

Has anyone dealt with the K-1 vs W-2 issue as a founder? My company started classifying me as a partner last year after raising our Series A, and I got a K-1 instead of a W-2. The quarterly estimated tax payments are killing me, and I wasn't prepared for the full self-employment tax hit.

I'm a tax attorney who's dealt with many founder classification cases. Your co-founder cannot unilaterally change your employment status, especially when you have a signed employment agreement. This is a common tactic to shift payroll tax burden from the company to the individual. The IRS uses a multi-factor test to determine worker classification, focusing on behavioral control, financial control, and relationship type. Based on your description - fixed salary, specific job title, limited decision-making authority, and formal employment agreement - you're clearly an employee under IRS guidelines. If your co-founder insists on this change, I'd recommend getting a written determination from the IRS using Form SS-8. This gives you official classification that protects both parties. Also consider that misclassification can trigger penalties and back taxes for the company, plus you could lose certain employment protections and benefits. Don't let him pressure you into taking on additional tax liability without proper legal review of your agreements and circumstances.