Earned income is a requirement for tax credit for dependent care expenses.
Earned income includes wages, commissions, net-earnings from self-employment subject to self-employment tax, net Sch C, net Sch F, etc.
Income reported on Sch K-1 from an 1120S is NOT considered earned income. It is not subject to self-employment tax or subject to FICA withholding. Therefore, it is not considered earned income for any purposes that require earned income.
Having worked for the 1120S corporation, your husband should have taken a W-2 wage out of the the corporation. That would be compensation/earned income.
See the following:
https://www.irs.gov/uac/about-publication-503
https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income
Note: when they say you own a business, they are referring to Sch C and/or Sch F where the earnings are subject to self-employment tax.
If this were a Sch K-1 from a 1065, and the K-1 indicated the earnings were subject to self-employment tax, then that would be considered earned income.
**Disclaimer: Effort has been made to offer correct information; but due to the discussion forum limitations, the poster disclaims any legal responsibility for the accuracy of the poster's response**
