An S-Corporation is a domestic corporation that is generally exempt from federal income tax.

Verifications: Copy of (insert appropriate year) IRS form 1040 with Schedule E or Schedule K-1 (Form 1120-S)

If client states they take a salary every month: Copy of (insert appropriate year) IRS 1040 with Schedule E or Schedule K01 (Form 1120-S) and W-2

Example 1: S-Corporations

• For S-Corporations, you would determine with the client if they are the sole owner or if they are one of many shareholders.
• You would ask what percentage of the business the person owns.
• You would determine how the individual receives income from the business. Is it through regular wages, dividends/distributions, or both?
• If the client receives a salary from the business, you would review W-2, Wage and Tax Statement. Line 1 displays the household member’s annual wages for the tax year. Divide amount by 12, or number of months the S-Corporation existed to calculate monthly amount. Code income as earned income into the MICAL in FACS.
• If the client received profit sharing income, review Schedule K-1, Shareholder’s Share of Income. Line 1 will display ‘ordinary business income’. The schedule E, Supplemental Income and Loss, Line 28, column h or k will also show ‘ordinary business income listed on Line 1 of the Schedule K-1. Divide ‘ordinary business income’ amount by 12, or actual number of months the S-Corp existed. Code income as unearned income in the “Other 1” line, Block F98 in FACS.

Randy Smith, during his interview for SNAP benefits, states that he is the sole owner of an S-Corporation from which he pays himself a salary. He provided his tax forms from last year and declares that the income is representative. He has owned the S-Corporation for the last 4 years. He declares that he did not receive any profit sharing / distributions in the last year.

From this example, Randy’s W-2 states that his annual wages were $24,012. His monthly income, $2001, is coded into the MICAL in FACS.

Additional FAQs:

Q1. A client and his spouse are the sole owners of an S-Corporation. They have provided their business and personal income tax returns. Is it correct to accept the personal income tax return and not consider the corporation’s return and use it to determine income?

A1. An S-Corp shareholder includes their share of the corporation’s income, deductions, etc. on their tax return. If they pay themselves a salary, you would need to have a copy of their W-2. You will also need to have a copy of their business return to verify that the clients are an S-Corp and also to determine if they received profit sharing.

Q2. I have an individual who is the sole owner of an S-Corp and also pays himself a salary from the company. The K-1 information should show up on the personal return, but should we still obtain both the individual and corporate tax return.

A2.  If the individual pays himself a salary, you would review their W-2, Wage and Tax Statement to determine their self-employment income. You would also review IRS Form 1040 with Schedule E or Schedule K-1 (Form 1120-S) to determine if they received profit sharing.