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

Rev. Proc. 2019-11 Unmodified Box Method, Modified Box 1 Method, Tracking Changes Method, Allocation Challenges

A live 110-minute CPE webinar with interactive Q&A

Wednesday, November 6, 2019

1:00pm-2:50pm EST, 10:00am-11:50am PST

or call 1-800-926-7926

This webinar will provide tax advisers to partnership entities with a deep and practical guide to determining eligible W-2 wages for purposes of calculating the Section 199A deduction limitations. The panel will go beyond the basics to detail the Service's position in Notice 2018-64 on allowable methods of allocating wages across multiple activities. The webinar will discuss the phase-in of the wage limitations, and describe the interrelation between wage and property limitation for purposes of calculating the 199A deduction.


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 on calculating W-2 wages for purposes of Sec. 199A. However, some complexity remains as to allocating wages, particularly in instances where a pass-through entity has multiple lines of business.

Section 199A requires pass-through businesses to reduce their QBI deduction based on W-2 wage limitations. The provision links W-2 wages for 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).

The revenue procedure provides three methods for calculating W-2 wages: the unmodified box 1 method, the modified box 1 method, and the tracking changes method. However, the Service noted that use of any of these methods does not ensure accurate calculation of W-2 wages allocable to QBI for purposes of computing the Section 199A limitations. 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


The panel will discuss these and other essential questions:

  • How the proposed definitions of SSTBs differ from other provisions in the IRC regarding service-related businesses
  • The IRS position expressed in the proposed regulations on the application of the "principal asset" test in determining whether a business line is an SSTB ineligible to claim the 20% pass-through deduction
  • The details of what is included in the W2 wage and income test for purposes of QBI eligibility
  • Benefits to taxpayers of aggregating multiple trades and businesses


Carrasco, Jose
Jose Carrasco

Senior Manager
Grant Thornton

Mr. Carrasco consults on technical issues affecting entities and their owners in transactions involving partnerships,...  |  Read More

Mandarino, Joseph
Joseph C. Mandarino

Smith Gambrell & Russell

Mr. Mandarino's practice focuses on corporate, tax and finance law. He is involved with a wide variety of...  |  Read More

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