I have an S-Corp with 2 officers which are also shareholders and 1 part time employee, which has no shares in the S-Corp.
The officers shareholders are also employees (are paid W-2 wages) and together they own 100% of the S-Corp.
On the 1120S form, line 8, I have the total wages for all 3 employees (ex. officer 1 7k, officer 2 7K, part time employee 3k), total 17K.
Since only the two shareholders receive a K1, their respective K1s contain their respective wages (7k in each individual K1). However, Turbotax for Business (desktop) does not let me proceed because the 1120 line 8 (17k) does not match the sum of the K1 W-2 wages (14k).
What am I missing? Am I doing something wrong?
Thank you very much for any suggestions you might have.
The Officers' wages should be entered on Schedule E and will flow through to Line, 7 of Form 1120S (Compensation of Officers). Only the wages of your employees should be reported on Line 8.
Officer and Shareholder compensation are added by going to:
Shareholder salary and wages do not appear on Schedule K-1 (1120-S).
They appear on the shareholders' W-2s and are a deduction to the corporation on Line 7 of the 1120-S.
Thank you for your reply.
The W-2 wages for the shareholder didn't appear on the K1 on 2021 but they do appear in 2022.
They are on 2nd-page 'Statement A - QBI Pass-through Entity Reporting'. I am attaching it for reference (see the W-2 wages row above the UBIA one).
What am I missing?
That is the statement that relates to the QBI deduction.
The shareholder uses that statement in conjunction with reporting information from the K-1.
Yes. It is however printed as part of the Schedule K1 which is distributed to shareholders (and it wasn't printed in 2021).
@HopeS thank you very much. I was able to do it per your instructions but I was still getting a few errors that I resolved by modifying some entries by hand:
1. Section 199A worksheet by activity, starts with the sum of all W2 wages (officers shareholders + other employee). I had to introduce a negative adjustment of 3K (salary of the part time employee) so that the adjusted W2 wages match the sum of the officer shareholder wages.
2. I manually modified the respective Schedule K1 'Statement A - QBI Pass-through entity reporting', so that the Statement A individual W2 wages for each officer match their individual W2 wages in Schedule E.
I assume that I had to make the modifications in #2 above because the respective entries were not pulled from Schedule E.
Makes sense?
shareholder wages are not reported on the K-1. you are probably looking at line 17 wages for QBI/199A deduction which would be total wages ($17K) multiplied by each shareholders ownership %
or $8.500 each if 50/50.
Yes. Thank you @Mike9241 . I think I finally got it.
For 2022, Turbotax prints three pages for each shareholder K1 being distributed:
Page 1: Shareholder Letter
Page 2: Schedule K1, Parts I, II and III
Page 3: Statement A - QBI Pass-Through Entity Reporting, where the individual Shareholder W2 wages are captured.
The Sum of all the individual W2 wages from the Page 3 of all K1 being distributed must equal the amount in 1120S line 7 (compensation of offices, which are also the shareholders, from form 1125E) and must also equal the adjusted W2 wages (line 8c from the Turbotax 199A Worksheet By Activity), which are the total wages (shareholders + part time employee) with a negative adjustment equal to the part time employee wages.
Without the three amounts being equal, Turbotax reports an error.