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Excess Net Passive Income Tax on Form 1120S in ProConnect

by Intuit Updated 11 months ago

This article will help you understand Excess Net Passive Income (ENPI) Tax in ProConnect.

A corporation must pay the ENPI Tax if all the following apply:

  • It's Accumulated Earnings and Profits (E&P) at the close of the tax year.
  • It has Passive Investment Income for the tax year that is in excess of 25% of Gross Receipts. This includes Portfolio Income from Schedule K which is considered as Passive Income for S Corporations.
  • It has taxable income at year end (using C Corporation calculation methods, not S Corporation rules).

Passive Income Items for the ENPI calculation are:

  • Gross Rental Income
  • Portfolio Income including Interest, Dividends, Royalties, Capital Gains, etc.
  • Gain from Sale or Exchange of Securities (The box Stock or security for passive net income tax in under Dispositions must be checked for these dispositions).
  • The Excess Net Passive Income that is subject to the tax is limited to the taxable income, calculated as if it were still a C Corporation. The threshold for the ENPI calculation is triggered when gross ENPI is greater than 25% of Gross Receipts and the corporation has E&P at year end. The program produces a worksheet titled ENPI Worksheet that details the computation of the tax. This worksheet can be viewed and will automatically print if the corporation is liable. The program carries the passive income items to the ENPI Worksheet if input correctly. There are overrides under Federal Taxes under the Excess Net Passive Income Tax section, that can be used to override any of the worksheet amounts (Each item of passive income passed through to the Shareholders is reduced by its share of the tax on line 22a.).
  • The program also automatically calculates the taxable income as if it were a C Corporation. It produces a worksheet titled Corp Tax Inc which can be viewed and will print if the ENPI Tax applies. Additionally, there are two input locations to indicate the Corporation has Accumulated Earnings and Profits (E&P), either of which will trigger this calculation. One is under Miscellaneous Info/Other Info under the box Accumulated earnings and profits at year end. The other location is under Federal Schedule M-2 under the Other Retained Earnings (Schedule L) section in the field labeled Additions to other retained earnings [A].
ProConnect Tax

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