I have a small business with only one employee, and I contribute matching funds to his Simple IRA plan.On the W3 form, box 1 shows the employees wages, box 3 shows social security wages, box 5 shows Medicare wages, and box 12 show Deferred Compensation to the employees SIMPLE IRA. Box 1 plus Box 12 = the amounts in bothbox 3. And 5.My question is: when I enter gross wages for the employee ,(that will appear on line 26 of the schedule C),”is that supposed to be the number that is in box 1 of the W3, or should that amount also include the deferred compensation in box 12, because that was part of the wages that I paid him?I put the employers (my) matching contribution in line 19.

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Jaybee617

Solved

How to.account for my employees deferred compensation

Forum|Forum|1 year ago
March 28, 2025
2 replies
0 views

I have a small business with only one employee, and I contribute matching funds to his Simple IRA plan.
On the W3 form, box 1 shows the employees wages, box 3 shows social security wages, box 5 shows Medicare wages, and box 12 show Deferred Compensation to the employees SIMPLE IRA.

Box 1 plus Box 12 = the amounts in bothbox 3. And 5.

My question is: when I enter gross wages for the employee ,(that will appear on line 26 of the schedule C),”is that supposed to be the number that is in box 1 of the W3, or should that amount also include the deferred compensation in box 12, because that was part of the wages that I paid him?

I put the employers (my) matching contribution in line 19.

Best answer by RachelW33

Yes, you are correct, the deferred wages that your employee contributed to his SIMPLE Plan should be part of your "wage" expense listed on Line 26 of your Form Schedule C.

So in your case, as described in your original question, your gross wages should include the amount from Box 1 of the W3 plus the amount from Box 12a (which would also be the amount listed for boxes 3 & 5 of your Form W3).

You are also correct about reporting your matching SIMPLE contribution on Line 19 of your Form Schedule C. In addition, you should report your Employer matching social security and medicare tax (FICA Match) and unemployment taxes paid on Line 23.

@Jaybee617

Mike9241

Box 1 (OF THE w-3)—Wages, tips, other compensation. Show the
total taxable wages, tips, and other compensation that you
paid to your employee during the year. However, do not
include elective deferrals (such as employee contributions
to a section 401(k) or 403(b) plan) except section 501(c)
(18) contributions. Include the following

Jaybee617Author

Thanks, but what do I do about the deferred wages that he contributed to the simple IRA (box12)?
Aren’t they a part of gross wages that I paid the employee (prior to deferral). so should they also be a business expense? If so where would I account for them?

i know the employer(my) Simple IRA matching contributions are on line 19 of schedule C.

Or am I thinking about this wrong?

RachelW33Answer

Yes, you are correct, the deferred wages that your employee contributed to his SIMPLE Plan should be part of your "wage" expense listed on Line 26 of your Form Schedule C.

@Jaybee617

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Jaybee617Author

Thank you so much for the very clear response to my question.

I do appreciate it.

Honestly I had spent about three hours on the phone prior to that trying to get an answer. It seems to me that the prompts that TurboTax asks should be amended, because it says to input the gross wages that are in Box 1 of the W3. It should also prompt to inpu deferred wages (from box 12)
This is confusing, Because I think I have done this wrong for the past 5 years and will need to amend.

thanks again