Definition of owner's total "compensation" for an S-corp SIMPLE-IRA

[Guest Steve Hample]

For a C corp, a person's "compensation" seems basically salary as would be shown on W-2. For a sole proprietor, "compensation" would be net earned income (profit). What about a small corporation with a sub-S election where a business owner has both salary and profit?

Suppose an owner / partner pays himself a base salary of $40,000 and the business has a good year and ends up with a profit of $150,000 allocated to that owner / partner. Would a 3% employer match be calculated as 3% of $40,000 = $1,200 or 3% x $190,000 = $5,700?

Reference?

Any different implications if the company had a SIMPLE 401(k) rather than SIMPLE IRA?

Thanks.

[R. Butler]

I'm really not sure what you are asking. Compensation is defined in the document; you need to start there.

If you are asking whether S-corp. dividends are included in compensation, the answer is no. The cite I think is Durando v. U.S (70 F.3d 548)

[R. Butler]

Oops, I fogot which forum I was posting under. This is a SIMPLE IRA; I'm guessing your using the 5304 or 5305. The comp. definition is in the form; essentially you use 6051(a)(3) for an employee including owners of an s-corp.

6051(a)(3) says comp. as defined for federal income tax withholding purposes (3401(a)) & you also include deferrals made to the SIMPLE IRA. Basically that means box 1 of the W-2 plus elective deferrals to the SIMPLE IRA.

[Guest Steve Hample]

Thanks. That was my impression, but wasn't sure.

Steve