Calculating earned income for sole prop who paid himself through his p

[Guest heplerclan]

I have a client who sponsors a profit sharing 401(k) plan. The plan is effective 1/1/2002 with just profit sharing. There are 32 participants plus the owner. To calculate the earned income for the owner, I requested the Schedule C, line 31 amount. Well I got it but along with it came a note that said the owner also received $112,000 in W-2 wages from his company. Yep, he received a paycheck that withheld taxes, including social security. The line 31 amount is $278,000 and includes the deduction for the 2002 payroll of all employees including him. Do I use the $278,000 for the earned income calculation and then add the $112,000 to the final number and for the 1/2 of self-employment deduction under 164(f) only use Medicare because he's already paid his full social security (and employer portion) as part of the $112,000 or do I add the $112,000 back to the $278,000 and calculate the earned income from that and include social security (and medicare) in the calculation?

My brain may explode soon!

[Blinky the 3-eyed Fish]

The former.

[jaemmons]

I agree with Blinky. In addition, you also need to offset his Medicare taxes (2.9% of all earnings) with what he already paid on the $112k, as both ee and er, before you compute 1/2 the SE tax.

[E as in ERISA]

Aren't you going to limit compensation to $200,000 anyway?