FICA withholding

[Guest jetfaninmn]

When did the FICA witholding regs go into place on ER contributions for 403(b) plans. Was this in the 1/1/06 regs?

[BeckyMiller]

It is in the regulation project, but the effective date was November 16, 2004. But this is the rule that subjects the employee deferrals to FICA. It also pertains to certain one-time elections of amounts that look more like employer contributions. Not sure the precise context of your question.

[Guest jetfaninmn]

The employer has been making ER contributions to the plan as a match. It is dollar for dollar on the first 5% and done on a payroll to payroll basis for 2005. They have realized that FICA should have been deducted for the ER portion only and have gone back and calculated the amounts that should have been withheld and will adjust on future contributions. Is this correct? It is the only 403(b) plan I administer.

[Guest TGeer]

The regs under 403(b) (and 401(k) contain a special rule for one-time irrevcoable deferral elections. They make the contributions subject to testing as employer contributions, so that ADP (not relevant to 403(b) anyway) and 402(g) limitations don't apply. Instead, the contributions are limited and tested as employer contributions.

The issue is whether those deferrals are subject to FICA. The answer is yes, they are. This does not make matching contributions, even when based on deferrals under a one-time election, subject to FICA. Nor are normal employer contributions subject to FICA. All that happens is you get this anomaly of defrrals that are tested as employer contributions but still subject to FICA.

The regs are at: http://benefitslink.com/links/20041115-032244.html

The Chief Cousnel action that started this up is at: http://benefitslink.com/links/20020413-016058.html