K1, S Corp, Health Insurance for officer/shareholder

Hi, All!
Am I overthinking this?
When preparing the K1 for an S-Corp, where the shareholder/officer has reimbursed health insurance premiums. QBI is clearly reduced by the health insurance expense. However, should W2 wages for purposes of the 199A calculation be reduced on the K1, line 17, code W?
For example:
S Corporation has taxable income of $50,000 (which includes deductions for $5,000 of officer health insurance). Corporation paid $75,000 in W2 wages BEFORE adding the $5000 to the officer's W2.
So, the W3 shows federal wages of $80,000 but Social security wages of $75,000.
For the K1:
QBI on line 17, code V is $50,000.
W2 wages, line 16, is code W is $80K or $75K?

Thanks for any thoughts on this.

QBI is reduced by SEHI at the shareholder level, not at the entity level.

Ahhh...ok. So, if we prepare an individual's taxes (But not the S corp/partnership), we'd better find out how the QBI was calculated and what went into the W2 wages calculation?

We reduce the individual's QBI by the SEHI, but what about when we get to the W2 wages part of the calculation (for those taxpayers who get to that)?

Would we reduce their QBI by SEHI AND reduce W2 wages for the 199A calculation by SEHI?

Probably need to review the three methods for determining QBI W-2 Wages from Rev. Proc 2019-11. You use one of those methods to report the W-2 wages on the K-1. That number may then used at the individual level to determine any limitation.

Will do...

199A QBI on the K-1 should not include any W-2 wages. QBID is then determined at the shareholder level by subtracting SEHI, 1/2 SE tax and SE retirement. Your software should be able to handle that by now. Several discussions on the board about this.

Here is a thread with some discussion on the wage calculation:
viewtopic.php?f=8&t=13929&p=126827&hilit=qbi+wages#p126827

199A QBI on the K-1 should not include any W-2 wages. QBID is then determined at the shareholder level by subtracting SEHI, 1/2 SE tax and SE retirement. Your software should be able to handle that by now. Several discussions on the board about this.

This would be applicable to a sole proprietor, but the OP was discussing an s-corp. SEHI and any retirement contributions would already be deducted on the 1120S. There are no additional deductions for this on the 1040.
A partnership would be similar assuming the SEHI were treated as GPs on the 1065.

AAARRGGHH...You are correct. My entity treatments are all screwed up. Software, save me! Anita...ignore my posts.

199A QBI on the K-1 should not include any W-2 wages. QBID is then determined at the shareholder level by subtracting SEHI, 1/2 SE tax and SE retirement. Your software should be able to handle that by now. Several discussions on the board about this.

This would be applicable to a sole proprietor, but the OP was discussing an s-corp. SEHI and any retirement contributions would already be deducted on the 1120S. There are no additional deductions for this on the 1040.
A partnership would be similar assuming the SEHI were treated as GPs on the 1065.

That was my thinking as well, but our software refuses to take this into consideration and treats all entities - S-Corps, Partnerships, Sch C, etc equally, reducing whatever is reported from K-1 as QBI by SE health insurance (and SE tax if on what used to be page 1).

We have to separately calculate QBI for all non-rental real estate entities, and we now attach a note on shareholder's K-1 stating QBI is calculated without making a deduction for Shareholder SE health insurance included on their W-2.

And this POS software (avoid GoSystem at all costs!!) does even more. It allocates self employment reductions (tax, insurance premiums) across ALL entites' QBI whether they generate these deductions or no. So if there is QB Loss, it is further reduced by SE health insurance premiums & SE Tax for a completely unrelated entity. FML.

and we now attach a note on shareholder's K-1 stating QBI is calculated without making a deduction for Shareholder SE health insurance included on their W-2.

I am confused. The SEHI for S corps and partnerships is deducted at the entity level. It is deducted as GP or as officers compensation. No further reduction of QBI should be made if the SEHI is handled correctly at the entity level.

Take a look at the IRS FAQ on QBI: https://www.irs.gov/newsroom/tax-cuts-a ... ction-faqs :

"Q33. Health insurance premiums paid by an S-Corporation for greater than 2% shareholders reduce qualified business income (QBI) at the entity level by reducing the ordinary income used to compute allocable QBI. If I take the self-employed health insurance deduction for these premiums on my individual tax return, do I have to also include this deduction when calculating my QBI from the S-Corporation?

A33. Generally, the self-employed health insurance deduction under section 162(l) is considered attributable to a trade or business for purposes of section 199A and will be a deduction in determining QBI. This may result in QBI being reduced at both the entity and the shareholder level."

I'm not sure the IRS is correct on this one, but that's their position as of last review/update on 16-Jul-2019 and I've been grudgingly following it. I'm not thrilled with the answer... but they're explicitly clear that 2% SEHI creates a double hit to QBI from the S-corp (at the entity level via wage deduction, and again as a QBI adjustment on the 1040). I'd love for someone to find an authoritative statement to the contrary.

From Webinar with TaxSpeaker:

Special Note For S Corp SHs. The SE health insurance deduction for an S corporation
shareholder is allowed as a result of wages paid to the shareholder, not passthrough K-1 income
(IRS Notice 2008-1). S corp SHs with no wages are not allowed a SE health insurance deduction
regardless if they have K-1 passthrough income - wages from the S corp are required. Wages,
however, are specifically excluded from the definition of QBI, including wages paid to an S
corporation shareholder. While the law and regulations do not specifically address S corporation
shareholder wages, it seems clear that the SE health insurance deduction for an S corp
shareholder is NOT ATTRIBUTABLE to "gross income from the trade or business used to
calculate" QBI, and, therefore, the SE health insurance deduction for an S corp shareholder does
NOT reduce QBI.