Earned Income Credit

Forum|Forum|5 years ago
April 1, 2021
6 replies
41 views

Does "earned income" include S-Corp K-1 pass through income? In addition, why does the definition link in TT say the earned income value is on line 7 of 1040 (wages, salaries and tips) when that is line 1? The current version of 1040 actually has a line 7a and 7b!

TurboTax Home & Biz Windows

M-MTax

Level 15

If by "earned" you mean "self employment" then that is not included on an S-CORP's K-1. Shareholders and employees of S-CORPs have earned income that's reported on W-2s and not any K-1s.

bww25Author

Level 2

Earned income credit is defined by the IRS but TT telling me to use Line 7 of the 1040 makes me uncertain what is included in "earned income." I have a single-member S-corp and my accountant has deemed it better to pass through those funds on a K-1. I do not get it as W-2 income. So clearly, I earned it but does the IRS allow it for the EIC when received in this manner.

JamesG1

Level 15

@bww25

I do not believe it will qualify as earned income for purposes of the Earned Income Tax Credit.

The IRS defines earned income as:

Taxable income you earned as an employee, such as wages, salaries, commissions, and tips,
Profits from operating your business or farm,
Long-term disability pay if received before the minimum retirement age,
Union strike benefits.

I suspect the K-1 will report on Schedule E. Use Schedule E (Form 1040 or 1040-SR) to report income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in real estate mortgage investment conduits (REMICs). Schedule E is for “supplemental income and loss,” and not earned income.

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