I am concerned about the QBI deduction for S corp in the situation where there is a deduction for self employed health insurance. TurboTax does it different from others.

[bicknell]

Apparently, my above question isn't very interesting, since there have been no comments or answers. But it should be. TurboTax is not adjusting the QBI that is input to Form 8995 (or 8995-A) for self-employed health insurance (SEHI) for 2% S-corp owners. IRS guidance  (draft instructions) seem to require that SEHI be subtracted from QBI on these forms. Other tax prep companies are doing it that way, but TurboTax is not. The typical savings to a taxpayer with the TurboTax assumption might be ~ $600, based on a $12K SEHI deduction. Can TurboTax staff please  comment on this? Do you have any inside info on your company's apparent mis-reading of the IRS guidance? My tax advisor (who also uses Intuit software) seems to agree with the TurboTax approach, but won't comment on the risk. I do agree that the TurboTax approach makes sense in one important way: the SEHI was ALREADY subtracted from the QBI that was reported on the K-1.

[DavidS127]

TurboTax is calculating QBI correctly for S Corporations that adhere to the IRS rules for reporting shareholder compensation by including in shareholder box 1 W-2 income and Form 1120S wages the amount of health insurance premiums paid for “more than 2% shareholders”.   When the W-2 and Form 1120S are prepared correctly, the self-employed health insurance is deducted one time for TurboTax QBI calculations.

Note that under the IRS rules, an S Corp taxpayer is eligible for the self-employed health insurance deduction only if the S Corp either pays the policy directly, or reimburses the shareholder for premiums paid directly by the shareholder (for a policy in the shareholder’s name).  In either case, the S Corp is required to include the health insurance premiums in the shareholder W-2 box 1 wages and report those health insurance premiums as wages on the Form 1120S.  So, the self-employed health insurance premiums are already deducted from the income being reported as income on the shareholder K-1.

S Corps that have not complied with the IRS rules to report “more than 2% shareholder health insurance premiums” as W-2 wages need to file corrected W-2 forms for these more than 2% shareholders.  Note that only wages reported to the SSA within 60 days of the deadline are eligible to be counted as wages for QBI purposes.   Also, the S-Corp should report these health insurance premiums for more than 2% shareholders as wages on Form 1120S and the shareholder K-1 as part of Section 199A wage reporting.

See this example demonstrating why TurboTax is appropriately calculating QBI for S Corp shareholders who have an accurate Form 1120S and shareholder W-2 forms:

For more information, see these IRS websites:

https://www.irs.gov/pub/irs-drop/td-reg-107892-18.pdf

https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-provision-11011-section-199a-qualified-business-i...

https://www.irs.gov/pub/irs-drop/rp-19-11.pdf

https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical...

[bicknell]

Thank you very much for the detailed response! I will try very hard to understand it, and refer to the links you provided.

[BevSucceeds]

@DavidS127, thank you for the detailed example.  I agree that we shouldn't be penalized twice by reducing S corp income AND again reducing QBI by SEHI, but my software, Drake, does just that without overrides.  I would hope the IRS would do away with the double reduction, but look at the ridiculous wording of the ERTC regarding S corporations - how can you make an exception for S corp owners who have children?

Anyway, my question to you is this:  You mentioned a 60 day deadline for wages reported to SSA.  Is that 60 days from the due date of the W-2 to the recipient (i.e. 1/31/22) or 60 days from the business tax deadline (generally 3/15/22, or maybe 60 days from the 1040 due date (4/18/22)?

I guess if we take a resonable position with support, we (as enrolled agents) could remove the double reduction of SEHI in the QBI.

[GeorgeM777]

To follow-up on the comments from @DaveS127, the due date would be within 60 days from the date W-2s need to be filed with the Social Security Administration. The filing deadline for a Form W-2 with the SSA is January 31st, thus, your first suggestion is the correct one.  That is, the Form W-2 would need to be filed with the SSA within 60 days of January 31, 2022.   

@BevSucceeds

[cpa4u]

I also had this question when I came across a article that said I have to deduct the health insurance twice. I went to AI to ask the question and I told AI it was an S-corporation and asked why deduct it twice for QBI. At first it agreed that this is correct to insure there is no double dipping. It still made no sense to me so I asked it again and said I needed more clarity. I further told AI that the health insurance was already deducted as additional salary that then becomes taxable on form 1040, therefore the net is now zero, then it gets deducted as an adjustment to gross income so it is deducted one time. Since it is already deducted from net income why do I need to deduct it again. AI replied "You make an excellent point" and said since the net income of the s corporation already reflects the health insurance deduction, there's no need to adjust the QBI calculation further. It thanked me for bringing this up! Since this makes sense and there is no double dipping I am going with this. I hope this is helpful for you.