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Self Employed 401K. How does this appear in the paystub…

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Self Employed 401K. How does this...
Self Employed 401K.

How does this appear in the paystub of the Scorp owner/employee?
Submitted: 6 years ago.Category: Tax
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5/2/2012
Tax Professional: CGCPA, CPA replied 6 years ago
CGCPA
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Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

 

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.

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Customer reply replied 6 years ago
How would it get added to wages? Is it not tax defferred?
Tax Professional: CGCPA, CPA replied 6 years ago
It is only added to the Social Security and Medicare wages since these taxes must be paid on it at the present time. The income tax is the portion that is tax deferred as are any earnings within the 401(k). Those are taxed (for income taxes) when the money is distributed to you.
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Customer reply replied 6 years ago
so assuming his annual wages is 100000 and he contributes 25% to 401 k, his social security wages is 125k??
Tax Professional: CGCPA, CPA replied 6 years ago
That is correct. The annual Medicare wages will also be $125,000.
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Customer reply replied 6 years ago

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

Tax Professional: CGCPA, CPA replied 6 years ago
That is correct. Keough does not change the answer. The ruling factor here is 2% or more shareholder.
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Customer reply replied 6 years ago

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?

Tax Professional: Bill, Enrolled Agent replied 6 years ago
Bill
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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

 

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Customer reply replied 6 years ago

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.

Tax Professional: Bill, Enrolled Agent replied 6 years ago

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.

Bill
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Customer reply replied 6 years ago
One more question can he contribute $16500 in addition to the employer contribution of $25000?
Tax Professional: Bill, Enrolled Agent replied 6 years ago
If it is a 401(k) then he could contribute $16,500 ($22,000 if age 50 or older) for 2011, or $17,000 ($22,500 if age 50 or older) for 2012. This assumes that his compensation is $100,000 for the $25,000 employer contribution limit.
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