How to Respond to Turbo Tax's Question Regarding Officer Compensation During e-Filing

You are considered for tax purposes an Officer of the Corporation since you are the Managing Member of the LLC.

Since you paid yourself a W-2 wage you would report that one officer received wages and the amount of wages you were paid.

If you have no other employees that you pay, then number of Employees that received a W-2 is zero.

The Turbo Tax prompt does not ask for the amount of wages paid. That's why this question is so out of place and also so under-explained.

You suggest that given my circumstances I respond to the questions:

YES

1

0

Correct?

That is correct.   You can answer  Yes - 1 - 0.  For purposes of reporting officer compensation, a managing member is considered an officer of the corporation.   They want you to confirm that you did pay yourself a wage on a W-2 as opposed to taking your income in only payroll tax-free distributions.  

Yeah, thanks!

Ask Turbotax to add more information on that page or collected earlier. Nothing worse than a question like that during e-filing (last step).

The answer needs much greater explanation. Also if you look up this issue throughout this forum, a number of experts reply with completely contradicting answers. 

Aren't they trying to determine of officers claimed compensation OTHER than by W2?

As mentioned above, "They want you to confirm that you did pay yourself a wage on a W-2 as opposed to taking your income in only payroll tax-free distributions. "

If that is indeed the case the answer would be NO, 0, 1.

No officer claimed comp (other than W2) and owner/officer paid himself via W2 (as I also do). 

We really need clarification about this as there is no help in the program.  

The answers to the following questions are in bold:

The IRS requires the following information when filing electronically.

Claiming Officer Compensation in this return (Yes/No)  Yes if reasonable compensation paid on W-2

Number of Officers with Compensation (expects a number) You stated a single member LLC elected to be taxed as an S corporation. You would enter the # of officers stated in the corporation minutes.

Number of Employee W2s issued for 2019 (expects a number) Enter the # of Employee W-2s issued not including the officer compensation

The owners also should be officers of the corporation.  Form 1125-E in the 1120S return would report compensation paid to officers.

An s corporation must have officers.

When you elected to be taxed as an s corporation you take on all characteristics of the s corporation, not just the ones you want.

In order to deduct the wages you paid yourself on the 1120S, you would enter those amounts reported on Form W-2 as officer compensation.

Yes, taking "cash and/or property distributions" without receiving reasonable compensation reported on Form W-2 would be quickly reclassified by IRS as compensation subject to employment taxes and assess you to late filing and late paying payroll taxes, which carry some heavy penalties.

Education is key ... here are the 1120-S instructions ... see page 16 :  https://www.irs.gov/pub/irs-pdf/i1120s.pdf

An LLC electing S-CORP tax status does not have officers but managing members. That is what is confusing. It should probably say Officers/Managing Members.

Also, doesn't the program actually ask for officers / 2% owners. The thread is from 2020. Anyway, my understanding is that the LLC does not become an SCORP its only taxes as one. Its still and LLC and it has no officers.

Gloriah, so based on your answer "Enter the # of Employee W-2s issued not including the officer compensation" the third question would be answered with a zero if the owner/officer is the ONLY person receiving W2 compensation? Thanks, MM

When you go to e-file a completed S-Corp return in TT Business, the program asks three questions that could be interpreted any number of ways. There is no help in the program.

SCENARIO: If you are the sole owner/officer of the S-Corp and you pay yourself a W2 and take no other money or compensation out of the business, what should your answers be to these questions and WHY?

1. Claiming officer compensation? Y or N. Does this mean compensation from W2 forms or are they specifically looking for compensation OTHER than W2?

2. Number of officers with compensation? If you claim YES on Q1, this line requires a numerical response. Again, does this mean compensation from W2 forms or are they specifically looking for compensation OTHER than W2?

3. Number of employee W2's issued? Does this include the W2 for the owner/officers or only employees OTHER than owner/officers?

Thanks! MM

SAMPLE SCREEN:

I reported this confusion to Intuit in 2020 and its still there for 2021. Clearly, those that do the QC do not know what they are doing or they assume that the user is a CPA with complete tax knowledge. Your point is correct, and this area needs to be cleaned up. Wording matters and assumptions have no place in a tax program.

This forums is run by Intuit and we should be able to report issues and have them addressed by Intuit quickly. I reported a similar issue I could recreate. One about how their implementation was unclear. I have yet to have a acknowledgement.

Mostly those that respond answer their own question and not the one asked. Keep at it.

I agree.

It was deadline, so I went with Gloria's advice above, but I'm guessing that every user of the expensive TT Business/Corp product runs into this screen and must be just as confused.

You are absolutely correct that problems in their software such as this, once reported, should be taken seriously by the company and should be addressed, updated and fixed in their software. 

1. "Enter the # of Employee W-2s issued not including the officer compensation" the third question would be answered with a zero if the owner/officer is the ONLY person receiving W2 compensation? Yes, correct.

2. Does this mean compensation from W2 forms or are they specifically looking for compensation OTHER than W2? It means compensation from Form W-2.

3. Number of officers with compensation? If you claim YES on Q1, this line requires a numerical response. Again, does this mean compensation from W2 forms or are they specifically looking for compensation OTHER than W2? 

It means compensation claimed and taxed as wages on Form W-2. 

4. Number of employee W2's issued? Does this include the W2 for the owner/officers or only employees OTHER than owner/officers?

This regard only employees OTHER than owner/officers.

@musicmafia

Even if an LLC elects to be taxed as an S-Corp, the owner is the owner.

@Critter-3 is correct. For more information, see: 2020 Instructions for Form 1120-S, page 16.

@beyondthebox

What are the consequences of being confused on this screen and providing the incorrect information? Because this is apparently only collected for electronic filing I assumed that it was used in some way to cross reference with Social Security on W2s or something and that returns would be rejected if it didn't match. In my case the 1120s I filed was accepted. Should I be worried about this down the road? The return itself is fine. Thanks! 

@alex14  There may be issues and there may not be.  If you receive a letter from the IRS asking for clarification of the information that you entered on your return just answer promptly with a return letter.  Should be fine.  Mistakes happen and none of these answers will result in money you owe to the IRS.

I disagree that mistakes are no big deal. Speaking from personal experience, if you miss (or don't receive) IRS correspondence regarding a simple mistake, and that mistake is not addresses, a small mistake can turn into a big deal. 

Experts should be providing solutions and these issues should be addresses by TT Business, so the interviews can be made clearer.

In the case of this issue, NOTHING has been changed on the TT Business program to address the confusion on this e-file screen.

I am NOT an expert, but after dealing with this issue since last year, here is my understanding of the questions in simple terms:

“Claiming officer compensation” refers to owners/officers receiving compensation from W-2.

“Number of officers with compensation” refers to the number of owners/officers receiving compensation on W-2. (If you claim YES on “claiming officer compensation,” this line requires a numerical response).

"Number of Employee W-2s issued” pertains to “employees” who are NOT owners/officers. If the owners/officers are the ONLY person(s) receiving W-2 compensation, and there are no other employees receiving W-2 compensation, this would be ZERO. If there are employees (other than owner/officers) receiving W-2 forms, the number of those employees would be listed here.

Again, I am NOT an expert and I can not guarantee this is accurate, but after a year of conflicting responses, this is what I think is correct. 

Yes, your understanding is correct. 

Thanks Julie. 

PS Would 1099 or K-1 compensation have any bearing on the answers, or is this solely regarding W-2 compensation (which I assume it is)?

Yes, these questions are based solely on W-2 compensation.

Thanks for confirming that! 😎

This is helpful.

If you are the owner and pay yourself compensation, then officer comp is yes. If you had employees, then employee comp is yes, else no.