Are W-2 wages for Section 199A allocated based on shareholder percentage or officer salary in an S corporation return (1120-S)?
W-2 wages reported for QBI purposes are based on the total “Entity” wages allocated by the shareholder's ownership percentages for each business activity. There is no provision to allow allocation of W-2 wages based on officer salary.
See REG-107892-18, pages 19-20 for more information:
"Additionally, proposed §1.199A-2(b)(4) restates the rule of section 199A(f)(1)(A)(iii), which provides that, in the case of a trade or business conducted by an RPE, a partner’s or shareholder’s allocable share of wages must be determined in the same manner as the partner’s allocable share or a shareholder’s pro rata share of wage expenses."
In Drake Tax, the deductible compensation amount will be allocated to the shareholders based on their ownership percentages automatically per the IRS guidelines, and there are no overrides available. See K-1 Wks QBI for a breakdown of amounts allocated to each shareholder.
Review the field help for Section 199A W-2 wages allocated to this activity on the 199A screen for additional information for the entered activity.
W-2 Wages for section 199A are not limited to or associated with the wages received by an individual shareholder. The amount of W2 wages for QBI is the W-2 Wage expense that was paid by the business to all of its employees.
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