QNECs and FICA

[Guest 91smithie]

My client wants to use a QNEC. Do you need to withold for FICA for a QNEC -- I think the answer is no because the FICA regulations include only wages which are excluded from gross income by reason of Section 402(e)(3) which requires that the employee have an election to either receive cash or defer the amounts and QNECs are non-elective. However, 401(k) regulations require that an employer treat QNECs as elective deferrals for other reasons.

Does anyone have definitive answer on this?

Thanks.

[Alan Simpson]

QNECs are employer contributions and are like matching and profit sharing contributions in that they are not subject to taxes (until withdrawn).

While QNECs are treated as "elective deferrals" this means that the QNEC is 100% vested as are employee deferrals. Not that they are an election by the employee to defer since the employees have no say in the QNEC.