Question

K-1 shows W-2 wages even though not employed

Forum|Forum|5 years ago
February 16, 2021
2 replies
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My business partner and I have an S-Corp where I'm 51% owner and he's 49%. I'm a W-2 employee for the company and received slight wages in 2020 ($1,400). He is not employed by the company. Upon reviewing our K-1s, I'm confused. Both are showing W-2 wages - $714 for me (51%) and $686 (49%) for him. Why is this the case?

TurboTax Business Windows

Rick19744

Not sure what part of the K-1 you are referring to, but this makes sense.

Your W-2 wages will be reported to you on your W-2.

This is an expense of the S corporation, and as such, is then allocated to the shareholder's based on their respective ownership percentage.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

K

KimCo1Author

Hi, thanks for your reply. I'm referring to Statement A (QBI Pass-through Entity Reporting), third line from the bottom (W-2 Wages). I'm a W-2 employee shareholder (51%) and he is a silent shareholder (49%). I earned $1,400 W-2 wages in 2020 and he earned none. For this reason, I expected my K-1 to show $1,400 W-2 wages and his to show $0. Instead, my K-1 shows $714 W-2 wages and his shows $686. I understand profits/losses are passed through, but wages too?

Critter-3

Please ask the person preparing the corp return to explain this to you in the QBI section ... the "wages" reported there are NOT the same as any wages that may have been reported on a W-2 form.

S

SweetieJean

One of the biggest IRS rules for S Corps is anyone who is greater than a 2% shareholder MUST TAKE reasonable compensation from the S Corp as a W-2 employee. Here's some reading for you:

S Corporations | Internal Revenue Service (irs.gov)

S Corporation Employees, Shareholders and Corporate Officers | Internal Revenue Service (irs.gov)