Definition of Compensation for CB Plan

We have an S-Corp who is telling me that the owner is no longer going to be receiving a W2 and instead receiving K-1 income.  Is there a way to utilize the K-1 income for the salary?  Just trying to help the client.  I've read that K-1 can only be used if it's a partnership, but I wasn't sure if that was accurate or not.

Thanks in advance!

Ask if the form to report the K-1 income is from Schedule K-1 (Form 1120-S Shareholder’s Share of Income, Deductions, Credits, etc.) This is different from Schedule K-1 (Form 1065 Partner’s Share of Income, Deductions, Credits, etc.)

The Schedule K-1 (Form 1120-S) is used to report a shareholder's portion of the corporation's income, deductions... and it does not report dividends paid to the individual.  Dividends are reported on Form 1099-DIV.

See the instructions for Schedule K-1 (Form 1120-S) here https://www.irs.gov/instructions/i1120ssk and note the comment on the IRS website that says "Your share of S corporation income isn't self-employment income and it isn't subject to self-employment tax."   Your understanding is accurate.

It can be confusing where there are two different forms (1120-S and 1065 in this case) that use the same schedule name (Schedule K-1).

If a 3-year average W2 compensations was established already, you may not need any current compensation for a defined benefit plan. However, you may need a reasonable compensation paid for services, but this is the question to an accountant/tax advisor.