Improper W-2 wages flowing to Section 199A worksheets

[lyle-gregory]

Improper W-2 wages are flowing to Section 199A worksheets from the "Wages and Salaries" entries on Forms 1065, 1120S, 8825, etc.  "Wages and Salaries" generally includes pension contributions and other items that are excluded from "W-2 Wages".  Only W-2 Wages are allowed to be used for the Section 199A deduction.  ProSeries needs to have a separate entry for W-2 Wages that will flow through to the Section 199A "Wages" entry.

As a work around, enter only W-2 Wages in the "Wages and Salaries" boxes of Forms 1065, 1120S, 8825, etc., and enter the difference as an "Other Expense" as "Non W-2 wages not reported on line XX" (line XX being the "Wages and Salaries" box).

[PhoebeRoberts]

Lacerte has both a diagnostic and an override field for this, FWIW.

[lyle-gregory]

Notice 2018-64 allows certain W-2 Box 12 items to be added to W-2 Box 1 wages for calculating "W-2 Wages" for purposes of Section 199A, but if so certain items reported in Box 1 must be subtracted from "W-2 Wages".  It is possible that the company classifies and reports as "Wages and Salaries" items that are not permitted to be included in "W-2 Wages" for Section 199A.

[itonewbie]

It's still not clear what you're trying to adjust for. Various qualified retirement plan contributions reported in Box 12 are includable.  Are you referring to W-2 wages not properly allocable to QBI?  Could you clarify?

[lyle-gregory]

Notice 2018-64 allows three alternative methods of computing W-2 Wages for QBI.  The first is to use W-2 Box 1 wages, which will exclude Box 12 voluntary deductions from taxable income.  The second allows W-2 Box 12 income to be added to Box 1 income, but Box 1 wages that are not wages for Federal income tax withholding purposes must be subtracted (for example, supplemental unemployment compensation benefits) .  The third requires actual tracking of wages subject to withholding that are reported in Box 1, and adding Box 12.  In almost all instances, the addition of Boxes 1 and 12 will likely produce an permissible result, but not always.

[itonewbie · Accepted solution]

What exactly would you like to adjust for and separated from W-2 Wages?

There is nothing inherently wrong in that general statement you quoted and that is in line with Notice 2018-64, which provides for different methods to account for W-2 Wages for purposes of §199A.