How do I get the system to recognize scorp W2 income as qualified business income subject to the limits testing ?

[bpalmer006]

Why won't the software pick up my w2 income from a scorp as qualified business income subject to section 199a deduction?

[TaxGuyBill]

The W-2 wages itself does not qualify for §199A deduction.

If you are talking about the phase-out limitation, Box 17 of the K-1 should show the qualifying corporate W-2 wages.

[bpalmer006]

Thanks for the response. But I have w2 income and box1 K1 income from the same scorp and the k1 amount shows up as QBI and the w2 does not. How do I get the w2 amount to be treated as QBI?

[dmertz · Accepted solution]

W-2 wages that you received from the S corp are not part of your QBI.  There is nothing you can do to make them part of your QBI.

[speniktwo]

The program recognizes the EIN from W-2 once you enter information from the K-1.  It should automatically pick it up as long as you meet all income requirements for the use of the Section 199a deduction.  If you have a loss, there would be no deduction.  If your income is too high, over $450,000 adjusted gross income, for MFJ filing status as long as  you are not considered a "service organization,." there is no deduction.

[dmertz]

No.  The final regulations state, "Amounts paid as W-2 wages to an S corporation shareholder cannot be included in the recipient’s QBI."  <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-drop/td-reg-107892-18.pdf">https://www.irs.gov/pub/irs-drop/td-reg-10789...>

[speniktwo]

The QBI has a separate calculation for the W-2 wages.

[TaxGuyBill]

QBI has a separate calculation if the income is over the phase-out range, and that calculation does involved the W-2 wages that the corporation paid.

However, the wages themselves do NOT qualify for QBI.  The W-2 from the corporation does NOT qualify for QBI.

[dmertz]

And as far as I know, for the S corp's wages paid TurboTax uses the code W amount from box 17 of the Schedule K-1 (Form 1120S), which should include the shareholders' wages.  Whatever amount is shown on the shareholder's W-2 would not be added separately.