Updated October 16, 2026. Quick answer: Boxes 4, 5a, 5b and 6 of Schedule K-1 (Form 1120-S) show a shareholder’s share of the S corporation’s interest, ordinary dividends, qualified dividends and royalties. The 2025 instructions send interest to Form 1040 line 2b, ordinary dividends to line 3b, qualified dividends to line 3a and royalties to Schedule E line 4. These amounts are portfolio income, which the instructions say is not subject to the passive activity limitations.
What boxes 4, 5a, 5b and 6 report
These four boxes sit under the heading “Portfolio Income” in the instructions. This page covers the shareholder’s side of a K-1 that was received; it does not cover how the corporation files its own return. Every other box is set out on the Schedule K-1 (Form 1120-S) boxes overview.
The instructions define the group in two sentences. “Portfolio income or loss (shown in boxes 4 through 8b and in box 10, code A) isn’t subject to the passive activity limitations.” “Portfolio income includes income (not derived in the ordinary course of a trade or business) from interest, ordinary dividends, annuities, or royalties”.
Where each box goes
The table sets the label printed on the K-1 beside the sentence that tells the shareholder where the amount goes.
| Box | Label on the K-1 | Where the instructions send it |
|---|---|---|
| 4 | “Interest income” | “Report interest income on Form 1040 or 1040-SR, line 2b.” |
| 5a | “Ordinary dividends” | “Report ordinary dividends on Form 1040 or 1040-SR, line 3b.” |
| 5b | “Qualified dividends” | “Report any qualified dividends on Form 1040 or 1040-SR, line 3a.” |
| 6 | “Royalties” | “Report royalties on Schedule E (Form 1040), line 4.” |
Box 4: interest income
The instruction for box 4 is a single sentence: “Report interest income on Form 1040 or 1040-SR, line 2b.” Schedule B, which lists interest and dividends, has its own explainer at the Schedule B (Form 1040) page, and interest paid by a bank or broker is covered on the 1099-INT box 1 page.
Boxes 5a and 5b: ordinary and qualified dividends
Box 5a is the total and box 5b is the qualified part. “The amount in box 5a may be attributable to previously taxed earnings and profits (PTEP) in annual PTEP accounts that you have with respect to a foreign corporation.” “You will need to determine the amount of the ordinary dividends that are attributable to PTEP in your annual PTEP accounts.”
Box 5b has the same note: “The amount in box 5b may be attributable to PTEP in annual PTEP accounts that you have with respect to a foreign corporation.” “You will need to determine the amount of the qualified dividends that are attributable to PTEP in your annual PTEP accounts.”
Ordinary and qualified dividends are paired on the Form 1099-DIV as well, and the 1099 version is explained on the 1099-DIV box 1a and 1b page. A K-1 dividend is not a payment of cash; the next section explains why.
K-1 dividends are not distributions
Box 5a is the corporation’s dividend income passed through to the shareholder, not a record of money paid out. “Schedule K-1 doesn’t show actual dividend distributions the corporation made to you.” “The corporation must report such amounts totaling $10 or more for the calendar year on Form 1099-DIV, Dividends and Distributions.”
The two are separate on the return. Tax on the share of income does not depend on a payment: “You may be liable for tax on your share of the corporation’s income, whether or not distributed.” “Your share of S corporation income isn’t self-employment income and it isn’t subject to self-employment tax.”
Box 5b and investment interest
The box 5b instruction ends with a tip: “Qualified dividends are excluded from investment income, but you may elect to include part or all of these amounts in investment income.” “See the instructions for line 4g of Form 4952, Investment Interest Expense Deduction, for important information on making this election.” The form is covered on the Form 4952 page.
Box 6: royalties
Among the boxes on this page, royalties are the only one that goes to Schedule E. “Report royalties on Schedule E (Form 1040), line 4.” Schedule E is explained on the Schedule E (Form 1040) page. If other S corporation items also land on that schedule, “If you have amounts other than those shown on Schedule K-1 to report on Schedule E (Form 1040), enter each item separately on Schedule E (Form 1040), line 28.”
Interest between a shareholder and the corporation
One interest rule affects how these boxes read when a shareholder lent money to the corporation. “The corporation will report any “self-charged” interest income or expense that resulted from loans between you and the corporation”. “If there was more than one activity, the corporation will provide a statement allocating the interest income or expense with respect to each activity.”
Limits and consistency before the numbers reach the return
The instructions put the limits in a fixed order: “These limitations and the order in which you must apply them are as follows: the basis limitations, the at-risk limitations, the passive activity limitations, and the excess business loss limitations.” The amounts printed in Part III are before any of them. “The amounts shown in boxes 1 through 17 reflect your share of income, loss, deductions, credits, and other items from corporate business or rental activities without reference to limitations on losses, credits, or other items that may have to be adjusted”.
The passive step comes last of the three. “When applicable, the passive activity limitations on losses are applied after the limitations on losses for a shareholder’s basis in stock and debt and the shareholder’s at-risk amount.”
Basis is the shareholder’s own record to keep. “You are responsible for keeping the information needed to figure the basis of your stock in the corporation.” “Any losses and deductions not allowed this year because of the basis limit can be carried forward indefinitely and deducted in a later year subject to the basis limit for that year.”
The shareholder reports what the corporation reported. “Generally, you must report corporate items shown on your Schedule K-1 (and any attached statements) the same way that the corporation treated the items on its return.” If a figure looks wrong: “If you believe the corporation has made an error on your Schedule K-1, notify the corporation and ask for a corrected Schedule K-1.” “Don’t change any items on your copy of Schedule K-1.”
Fiscal-year corporations shift the year. “If you file your tax return on a calendar-year basis, but the corporation files a return for a fiscal year, report the amounts on your tax return for the year in which the corporation’s fiscal year ends.”
Which revision applies
The edition read for this page is the 2025 Shareholder’s Instructions for Schedule K-1 (Form 1120-S) and the 2025 Schedule K-1 (Form 1120-S) itself, which are the revisions irs.gov served when they were read on 2026-10-16. Check the revision printed on the Schedule K-1 you received and the matching instructions, because a later edition can change the box layout, the column letters and the reporting lines.
Common mistakes
- Treating box 5a as cash received. The instructions say Schedule K-1 does not show actual dividend distributions, which the corporation reports on Form 1099-DIV at the stated threshold, so box 5a is income passed through and not a payment record.
- Putting qualified dividends on the ordinary dividend line. The instructions send box 5a to line 3b and box 5b to line 3a, and the box 5b tip adds a separate election for investment income on Form 4952.
- Sending royalties to the interest and dividend lines. The instructions send box 6 to Schedule E, line 4, and not to Form 1040 line 2b or 3b.
Related: Schedule B (Form 1040) interest and dividends, 1099-INT box 1 interest income, 1099-DIV box 1a and 1b dividends, Form 4952 investment interest, and Schedule E (Form 1040).
Sources
- 2025 Shareholder’s Instructions for Schedule K-1 (Form 1120-S): https://www.irs.gov/pub/irs-pdf/i1120ssk.pdf
- Schedule K-1 (Form 1120-S) (2025), Shareholder’s Share of Income, Deductions, Credits, etc.: https://www.irs.gov/pub/irs-pdf/f1120ssk.pdf
Read from the IRS documents linked above on October 16, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.