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Solved

401k Nonelective Contributions (profit sharing) as S-Corp

Forum|Forum|5 years ago
January 29, 2021
1 reply
0 views

I'm hoping someone can help me. I'm not referring to employer-matched deferral contributions, but the nonelective contributions also referred to as profit-sharing that's limited to 25% of employee wages. Must these contributions go through Payroll or do you just pay that employee and expense it out on the 1120s? I know you do salary deferral contributions through payroll and employer-matched contributions made to their deferrals but can't find the answer on nonelective contributions.

Thanks

Curtis

TurboTax Business Windows

Best answer by dmertz

Employer contributions are an expense of the S corp and have nothing to do with payroll. They are not wages and are not paid to the employee. They are not reported on the employee's W-2 or tax return, they are only reported on the S corp's tax return. A 25%-of-compensation profit-sharing contribution would be made in lieu of matching contributions, not in addition to matching contributions. The S-corp can't do both and must do the same for all eligible participants in the plan.

dmertzAnswer

Employee

Employer contributions are an expense of the S corp and have nothing to do with payroll. They are not wages and are not paid to the employee. They are not reported on the employee's W-2 or tax return, they are only reported on the S corp's tax return. A 25%-of-compensation profit-sharing contribution would be made in lieu of matching contributions, not in addition to matching contributions. The S-corp can't do both and must do the same for all eligible participants in the plan.

...is the s-corp. employer's 401k contribution limit of 25% on gross salary or taxable salary?

Example: employee's salary is 60K, with 20K contributions to a 401k, for a taxable salary of 40K. Is the employer limit 60K or 40K?

Employee

25% of the employee's compensation, 25% of $60k in this case.