Is Income on an S Corporation K-1 Considered Earned Income?
Software reference · Written guide Content date 1 min read
Ordinary income reported to an individual shareholder on Schedule K-1 from an S-Corporation is not considered earned income. Such income is investment income, thus not subject to self-employment tax, and it isn't taken into account when calculating a tax credit that uses earned income in its calculation.
An S corporation must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation. This compensation is their earned income and is reported to them on Form W-2, and as with any income reported on Form W-2 is used in the calculation of a tax credit that is based on earned income.
Additional Information:
IRS: S Corporation Compensation and Medical Insurance Issues