How do I account for self employment taxes on Schedule K1 income?

[clopez8651]

We are an LLC being taxed as an S-Corp. During the past year, we calculated the self employment taxes on that income and included those amounts in our quarterly estimated payments.   I was told by an IRS representative that when we filed our individual return, we would need to complete a Schedule SE for each of us to properly allocate the taxes (income tax, Medicare tax, and Social Security tax). We completed our 2018 1120S return and generated a Schedule K1 for each of us.  We are using TurboTax Premier to complete our individual return.  I have entered the Schedule K1 amounts under the Income section and the total amount of the estimated payments in the deductions and credits section.  When I go to enter the self employment taxes paid under  Other Tax Situations/Business Taxes, the program tells me that we are not liable for self employment taxes.  How can I generate the Schedule SE so that we can report the taxes paid to Medicare and Social Security?

[DDollar · Accepted solution]

As an LLC being treated as an S-Corporation for tax purposes, you do not file Schedule SE.  What you should have been doing is treating yourselves as employees of the LLC/S-Corp, paying wages and withholding social security and medicare tax, and then reporting that on a W-2.  Income reported on a Form K-1 from an S-Corporation is not subject to self-employment tax, so TurboTax is not going to generate a Schedule SE.  S corporations can pay out some of their profits as a distribution. Distributions are not subject to self-employment tax. A sole proprietor pays self-employment tax of 15.3% (Social Security and Medicare) on all profits. ... However, an S corporation need not pay all of its profits to its employee(s) as wages.  It's one of the advantages of being taxed as an S-Corp; however, you are required to pay yourself a "reasonable salary".