Calculating Wages for W-2 Limitations Under Section 199A: New IRS Guidance on Permitted Methods

A critical component of the Section 199A QBI regime is determining whether a pass-through entity has paid sufficient W-2 wages to qualify for the 20% deduction. In April 2019, the IRS issued Rev. Proc. 2019-11 to provide methods for calculating W-2 wages for purposes of Section 199A. However, complexity remains as to allocating wages to an entity’s trades or businesses, particularly in instances where a pass-through entity has multiple lines of business.

Section 199A requires pass-through owners to reduce their QBI deduction for a trade or business based on W-2 wage limitations. The provision links W-2 wages for Section 199A calculation purposes to the definitions found in Sections 6051(a)(3) (amounts paid for services by an employer to an employee) and 6051(a)(8) (elective deferrals and deferred compensation).

Tax advisers must know not only how to use the wage calculation methods permitted by the Rev. Proc., but also how to allocate the wages to QBI.

Listen as our expert panel goes beyond the basics to offer practical guidance on the permissible methods of calculating and allocating W-2 wages for Section 199A QBI purposes.

1. Section 199A W-2 wages and property limitations
2. Rev. Proc. 2019-11 permissible methods
   1. Unmodified box 1 method
   2. Modified box 1 method
   3. Tracking changes method
   4. Cross-reference to Section 6051 wages definitions
3. Allocating W-2 wages to QBI activities
4. Aggregation questions
5. Definition of W-2 wages for QBI calculations and limits
6. Allocating W-2 wages to PTE owners
7. Impact of reasonable compensation requirements on QBI deduction calculations

Learning Objectives

After completing this course, you will be able to:

• Describe the different methods for W-2 wage calculation for Section 199A QBI purposes found in Rev. Proc. 2019-11
• Understand the rules for allocating W-2 wages among trades or businesses of a pass-through entity
• Understand the impact of aggregation on QBI calculations
• Discern how Rev. Proc. 2019-11 does, and does not, apply to employment tax calculations
• Identify inclusions in the W-2 wage and income test above federal taxable income

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and sole proprietorships, qualified business income, net operating losses and loss limitation rules. The webinar assumes familiarity with the basics of the Section 199A QBI pass-through deduction.

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).