@dnmalkin wrote:
Ok, so when I am doing my individual 1040, would I take the $40,000 on the W2 and put that in the wage section of 1040 (line 1)?
My assumption is that this would be earned income and therefore would allow me to take the EIC (earned income credit). Is that correct?
In general, wages that your S-corp pays you on a W-2 will count as "earned income" and will help to qualify you for EIC.
But, if your numbers are roughly accurate and you will have $40,000 of earned income and $60,000 of "other" (unearned) income, you will be disqualified, since your adjusted gross income will more than the upper threshold. Remember that EIC is a credit for low income workers, to encourage people to work, and to make up for the fact that social security and medicare are "regressive" taxes (every worker pays social security and medicare even if they have enough deductions and credits to not pay income tax. EIC started out, at least in theory, as a rebate of social security and medicare tax for the lowest income workers.) If your total income is more than the upper limit, you don't get EIC because you aren't "lower income" any more.
See table 1 in publication 596.https://www.irs.gov/publications/p596
