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If you are a 2% or more owner (shareholder) of an S Corp the 401(k) gets taxed for Social Security and Medicare taxes. This is to be added to the regular payroll amounts for W-2 reporting and will thus create a wages amount (for these two items) that differs from your income subject to Federal income tax.
So end of the year in his w2 box 12 (d) will show $25000
Also will your answer be different if it is keogh profit sharing plan
Generally employer contributions to any retirement plan does not show up in the W2 of the employee.
Is it different because it is shareholder of an scorp?
It is not different for a shareholder of an S corp.
An employer contribution to a KEOGH plan should not be entered in box 12 with code D. That code is only for employee elective deferrals to a 401(k) plan. Employer contributions are not subject to social security/medicare taxes nor are they included on the W-2. Only employee elective deferrals are included on the form and subject to social security/medicare taxes.
With regards XXXXX XXXXX example of a $25,000 contribution to a 401(k), only $16,500 (for 2011) or $22,000 if age 50 or older can be considered an employee elective deferral and included on the W-2. The balance ($8,500 if $25,000 - $16,500) would have to be an employer contribution and not subject to social security/medicare taxes nor included on the W-2.
See page 10 - http://www.irs.gov/pub/irs-pdf/iw2w3_11.pdf
See page 33 - http://www.irs.gov/pub/irs-pdf/p15.pdf
Thanks this was useful.
My understanding is employees do not have to participate in the profit sharing plan.
So in the above example if the whole $25,000 contribution is made by the employer- is there a requirement to consider $16,500 as employee defferal because the employee is not making any contribution.
If it was only a profit sharing plan and the only contributions that were made were from the employer, then the $16,500 would not be an elective deferral.
Most 401(k) plans are part of a profit sharing plan so both types of contributions can be made if the profit sharing plan document includes a 401(k) provision.