Discussion:401(K) Limits and W-2 Reporting
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Discussion Forum Index --> Tax Questions --> 401(K) Limits and W-2 Reporting
| 24 December 2006 | |
| Since this worked out so well the last time, I thought I'd try it again.
I have a client who runs an S-corp and has about 10 emloyees including his wife. The owner and wife are over 50 and contribute the maximum allowed to the S-corp's 401(k) plan. The wife has an annual salary of $18000 and contributed all of it as an elective deferral this year, something she has not done previously. Can the wife "reimburse" the corporation for FICA taxes, or can the company eat it up as an expense. If it would be a company expense, then would it be nondeductible? Or would the FICA taxes be treated as "salary" and would need to increase the W-2 by $1491 to cover the $1322 FICA tax on $18000 and the FICA tax on the $1322 as deemed salary. Thanks for the help. | |
Mtmckeecpa (talk|edits) said: | 24 December 2006 |
| RDP,
Elective deferrals are subject to FICA. To get an $18k deduction, her salary would need to be $19,491 She ends up with a net paycheck of zero...$18k to the 401k and 1491 withheld for FICA, plus the company match on the FICA. Not quite sure I understand about the reimburse part...husband is asking wife to reimburse business for the FICA taxes....a lump of coal in his stocking! | |
| 24 December 2006 | |
| Yes, just gross up her pay for FICA as indicated - no need for reimbursement, non-deductible, etc. | |
Bottom Line (talk|edits) said: | 24 December 2006 |
| The company match of the FICA is an expense to the business | |
| 26 December 2006 | |
| Are all QRP's subject to FICA, or just 401k? For example, a Keogh? | |
| 26 December 2006 | |
| It it only on net earned income; so either a corporation or other entity which pays in to FICA can take the deduction. Net earned income is subject to FICA. | |
Death&Taxes (talk|edits) said: | 26 December 2006 |
| If the company pays her FICA, is that not income to her? Works that way with household workers. | |
| 26 December 2006 | |
| Either way D&T; fica needs to be paid...self employed with KEOGH have to pay the 1/2; so no matter what...SS wants their share or so I assume. There I go assuming again :) | |
Death&Taxes (talk|edits) said: | 26 December 2006 |
| Sandy: my point is, won't her Federal earnings be 19,377 if the company pays her FICA? 18,000 + 1377 of FICA? Actually EDP alludes to my point in his final sentence. Didn't read the question carefully. Seems to be a lot of that going around. I agree it should be part of her W-2 Block 1 wage, but not FICA wages. | |
| 26 December 2006 | |
| Thanks for the replies.
The Federal earnings would be 1491, she would have QRP deferral of 18000. FICA earnings would be 19491, FICA Taxes would be $1491, State earnings would be 1491 (since she does not live in PA). Therefore: Gross Earnings $19491, less 18000 QRP deferral, less $1491 FICA, would be a net salary of zero. Thanks | |
