401(k) deferrals/ deferred taxation/FICA

[pmacduff]

We have a PEO client with a Mulitple Employer Plan. They are signing on a new client, and the client is asking...under what section of the code does it state that the portion of a participants income that is 401(k) (CODA) contributions is exempt from Federal and State taxation, but IS subject to FICA taxes? I have found references in the Code that state "CODA contributions are not currently includable in income", which explains the Fed. & State deferred taxation, but does it explicitly say anywhere that they ARE subject to FICA? It seems to me that this is more of a payroll question than a question for us as TPA, but I was also curious.....

[JanetM]

The FICA (Federal Insurance Contributions Act) is not the same as IRC.

Think of it this way, unless you find a cite that states something is not subject to the regular rule, it is subject to the regular rule. Section 401k specifically excludes deferrals (up to 402g) from federal taxation. Many states copy the federal code as far as taxation, but some do not.

You aren't going to find site that states that X, Y and Z are subject to the tax. You will find that all income is subject to tax..... except ...

Hope this helps.

[Guest Harry O]

See section 3121(v)(1)(A).

[pmacduff]

Thank you!!