TMH

Per Rich Hochman. Yes, the cash value of the gift card should have had a salary deferral made from it as this form of pay was not excluded within the plan document. it is also not a "fringe benefit" and therefore would be subject to 414s testing.

I have been trying to find clarification that the add back of the cash value of the gift card to the employee's payroll needed to also have a 401k salary deferral amount deducted from it. The ER grossed up the $500 value to cover taxes and then showed a deduction of $500 in a category called "gift card" to net the employee a $0 paycheck. The ER is asking should they have also accounted for his 401k salary deferral contribution amount and included that as well. Since the plan uses the definition of pay of 3401a and the plan has no exclusions of compensation, I may be just overthinking this and the answer is yes, the ER should have grossed up to cover the 401k deduction because the plan does not exclude anything and this gift was subject to taxes at the source. If the plan excluded the fringe benefit, then the answer is no. But I have sent this issue to Rich Hochman as this plan is on the McKay Hochman document for now. Thank you.

I have confirmed this client did gross up to cover applicable taxes to net a check of $0. But the question is was 401k withholding required on this check. I believe that answer is no because the plan's defintion of pay is 3401a. Comments?

Also, the question is 401k salary deferral required on the add-back. My answer is no because the definition of pay is 3401a. That is what we are really trying to confirm.

Not sure I agree with this as I had back owner health insurance and taxes are not required. They flow to my W2 but no taxes are withheld at the source meaning as payroll is processed.