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?
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.
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)
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?
Please ask the person preparing the corp return to explain this to you in the QBI section ... the "wages" reported there are NOT the same as any wages that may have been reported on a W-2 form.
No, wages are reported on Form W2.
What is reported on Form K1 is generated from the Form 1120-S.
Whoever prepared the company's 1120-S did not go to the right place in the program to allocate the wages paid properly as they were actually paid and they were allocated (default) on the K1 based on the shareholder percentages.
There should be amended K1s issued to report the correct amounts.
@KimCo11 wrote: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?
That is based on how much wages the COMPANY paid, for purposes of the Qualified Business Income (QBI) deduction. That does not add taxable income to your personal return when you enter the K-1. It has nothing to do with how much your specific wages were, it is based on the TOTAL wages for ALL employees of the corporation.
As was mentioned, your wages should be on your W-2.
I'm struggling with this exact issue. Then where is the correct place in the program to enter in the actual wages paid so that the report doesn't default to the % of the shareholders? Do I enter in the salary as an officer or as a >2% Shareholder? Thanks,
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:
Enter these values for the qualified business income deduction to be calculated.