Definition of "Compensation" for calculations in a SAR SEP Plan

[Guest rffahey]

I have a self employed individual with employees and a SAR SEP PLan.

For purposes of computing his SEP contribution is his Schedule C compensation reduced by his elective deferrals and his catch up elective deferrals ? I know that is is reduced by the FICA tax deduction and his own contribution to the SEP portion of the plan.

So if he net Sch C after employee contributions is 100,000 and his FICA tax deduction is $9,000 and his salary deferrals/catch up are $16,000 what is his personal maximum SEP contribution??

THanks

[Bird]

I think you have to read the document to see if deferrals reduce compensation; probably not.

You reduce earned income by 1/2 of the FICA tax.

[Gary Lesser]

Also see Publication 560 (page 4) that permits an election to use unreduced compensation for allocation purposes.

If so, for 2004, nonintegrated and 125 percent SARSEP test satisfied, and with employees getting a 6.443184 percent contribution resulting in $100,000 pre-plan (after reduction for non-owner contributions), I get a 402(h) limit of:

$13,000 + $3,000 + $5,642.22 (e/er; 6.443184% of $87,568.90 [$100,000 - $5,642.22 (e/er) - $6,788.88 (SET)]) = $21,642.22 (2004 Total)

$100,000 - $6,788.88 (SET) - $13,000 - $5,642.22 = $74,568.90

$74,568.90 x .25 = $18,642.22

Note: catch-up contributions do not reduce the base upon which the IRC 402(h) limit is computed. [iRC 414(v)]

$18,642,22 + $3,000 = $21,642.22