Level 5

Question

No earned income - refundable Child Tax Credit

Forum|Forum|3 years ago
April 16, 2023
3 replies
48 views

A friend with an LLC set up as an S-Corp asked me to do her taxes, last minute. She is HOH with a young daughter & expected EIC & CTC refunds, as in the past. She obviously did NOT understand that the distributions from the S-Corp (her only income all year) from Line 1 $5,960. are ordinary income and do not qualify her for EIC. Strange thing is, the refundable CTC ($1,500) is not being calculated in the tax program. What in the world am I doing wrong ... is there some little check-box I am missing? PLS HELP!

ProSeries Professional

This topic has been closed for replies.

qbteachmt

Level 15

Could you please clarify this: "She obviously did NOT understand that the distributions from the S-Corp (her only income all year) from Line 1 $5,960. are ordinary income"

Are you referring to Line 1 of the 1040? And a W2?

Because distributions are not a taxable event, unless they exceed basis. However, payroll (a W2) would be taxable for anyone, as this is their earned income. The other money from the success of the S Corp would be part of the pass through reporting via K-1.

Don't yell at us; we're volunteers

B

buelfarmAuthor

Level 5

Line 1 of the Sch K-1 from the S-Corp is ordinary income. My concern is not the EIC, as she obviously has no earned income as a result of choosing this particular tax vehicle ( LLC as an S-Corp ) - it is the CTC b/c the instructions are clear that you do NOT need earned income or income at all in order to receive the fully refundable portion of the CTC ($1,500). How in the world do we do that?!

abctax55

Level 15

b/c the instructions are clear that you do NOT need earned income or income at all in order to receive the fully refundable portion of the CTC ($1,500).

Really ? I think not. Rules change from year to year.

HumanKind... Be Both

abctax55

Level 15

If you follow the F 8812, page 2, I believe you'll find your answer.

Earned income is needed.

HumanKind... Be Both

B

buelfarmAuthor

Level 5

I see the earned income requirement there, and the instructions seem clear, as well. This taxpayer pulled up an IRS.gov page when she stopped in to show me that she could qualify for the refundable CTC with no income ==> turns out, she may have put in 2022 & her search engine assumed the 2022 filing season (which were 2021 returns) when she would have been right. Not this filing season, it seems.

dkh

Level 15

Did you prepare the SCorp return ?

Why isn't there a W2 from the SCorp ?

B

buelfarmAuthor

Level 5

No, I did not - she simply brought me the Sch K-1 (along with a long story ... ) - she has NO IDEA how the numbers they gave the accountant came out on her Line 1, Sch K-1. He treated everything as Distributions, apparently, even though the 2 partners each had Draws ... I told her I thought there should be Form W-2's ... maybe I was right about that? Feeling like I should never have told her I could look it over for her, even though I don't "do" S-Corps ... I thought I couldn't go wrong with a correct Sch K-1, but she had no answer when I inquired about the Form W-2.

Just-Lisa-Now-

Intuit Community Champion

theyre not partners, theyre shareholders, if youre not up to the challenge of preparing the SCorp return (no judgement here, I turn away SCorp returns as well), she may wish to seek out a more qualified S-Corp preparer next season to get her on the right track.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

Sign up

Login with SSO

Let's get you signed in

Login with SSO