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Level 1

How do I get around the fact that TurboTax is not recognizing S-corp income as earned income (Schedule K) for dependent care expenses?

We are unable to enter child care credit expenses in TurboTax. My husband is a business owner and has an S corporation. Turbotax does not recognize that as earned income. I keep getting a response that we don't qualify due to no earned income from both parents.

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Level 11

How do I get around the fact that TurboTax is not recognizing S-corp income as earned income (Schedule K) for dependent care expenses?

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.