Question

K-1 shows W-2 wages even though not employed

Forum|Forum|5 years ago
February 16, 2021
2 replies
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My business partner and I have an S-Corp where I'm 51% owner and he's 49%. I'm a W-2 employee for the company and received slight wages in 2020 ($1,400). He is not employed by the company. Upon reviewing our K-1s, I'm confused. Both are showing W-2 wages - $714 for me (51%) and $686 (49%) for him. Why is this the case?

TurboTax Business Windows

Rick19744

Not sure what part of the K-1 you are referring to, but this makes sense.

Your W-2 wages will be reported to you on your W-2.

This is an expense of the S corporation, and as such, is then allocated to the shareholder's based on their respective ownership percentage.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

K

KimCo1Author

Hi, thanks for your reply. I'm referring to Statement A (QBI Pass-through Entity Reporting), third line from the bottom (W-2 Wages). I'm a W-2 employee shareholder (51%) and he is a silent shareholder (49%). I earned $1,400 W-2 wages in 2020 and he earned none. For this reason, I expected my K-1 to show $1,400 W-2 wages and his to show $0. Instead, my K-1 shows $714 W-2 wages and his shows $686. I understand profits/losses are passed through, but wages too?

J

JamesG1

Where do you put these W-2 wages on the K1, (what block) also where do you put the Unadjusted basis immediately after Acquisition? I have amounts in both of these on the QBI pass-through but really unclear where I put this on the tax from?

Not sure whether you are referring to partnerships (Code 20) or Sub S (Code 17), but the screen entry is the same.

At the screen Enter Box 17 info, select code Z Section 199A information. Click Continue.

At the screen We need some information about your 199A income, you will likely need the following information:

Ordinary business income (loss) from this business,
W-2 wages for this business, and
UBI of qualified property for this business.

Enter these values for the qualified business income deduction to be calculated.

@mpsimpson

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S

SweetieJean

One of the biggest IRS rules for S Corps is anyone who is greater than a 2% shareholder MUST TAKE reasonable compensation from the S Corp as a W-2 employee. Here's some reading for you:

S Corporations | Internal Revenue Service (irs.gov)

S Corporation Employees, Shareholders and Corporate Officers | Internal Revenue Service (irs.gov)