Calculating self employed or partnership income

[dmb]

When calculating the "benefit compensation" for self employed or partnerships with employees, at the start, do the employees' salary deferrals get subtracted from the self employed or partner's net income along with the employer contribution to the employees??? Any help is appreciated. Thanks.

[E as in ERISA]

Employees' total compensation gets subtracted. So if their total compensation is $200,000 and out of that they deferred $10,000 and took $190,000 in cash, then the total $200,000 would be deducted from the self-employed person's income somehow. The presentation could vary but the total amount paid out should be recorded.

[mbozek]

K I dont understand what you said. A partner's comp is based upon net earnings from self employment from the P ship, E.g. Net earnings of a partner is 200k and partner contributes 10k to plan. Comp is 200 because that amt appears on K-1 along with 10k contribution to the 401k plan. Partner includes 200k as income from employment on line 7 of the 1040 and deducts 10k on line 32 of the 1040 to net 190k AGI.

[Blinky the 3-eyed Fish]

In short, 401(k) deferrals do not affect the earned income calculation. This question has come up a few times before on these boards.

[dmb]

Thanks, I searched a little, but found one message that didn't have any replies. Thanks again.

[Guest merlin]

To go one step further, if the plan allows for a match and/or nec, I assume you then have to look to the plan definition of compensation for the treatment of deferrals? In this instance, if deferrals are included, then any match or nec would be calculated based on $200,000? If deferrals are not included, then $190,000?