Partner with W-2 Income from Partnership

[Guest flamingo]

I have a partnership with 2 partners, one of which has W-2 income AND a K-1 from services provided to the employer. The plan is a SH 3%, cross tested 401(k) PSP and I need to allocate both a SH and PS contribution. In Relius 12.0, how do I account for the W-2 income for allocations to the partner and calculating the partnership compensation?

[Jim Chad]

Am I right in thinking that the W-2 income is from another business that is not under common entity rules?

If this were the case, your reason for taking it into account is just for FICA and Self employement taxes.

If it is a common employer, that is a different problem.

Is the w-2 from a common employer?

[Guest flamingo]

Yes, the W-2 wages are from the same employer.

[Jim Chad]

I don't think there is a good way to handle this. Maybe the best idea would be to call support for a workaround.

[Kimberly S]

You are probably going to have to do that calculation manually rather than having Relius calculate it.

[Jim Chad]

I think Relius can help you, though.

If you put the owner in as a separate employee who is eligible for the Plan and put in w-2 comp.

And leave him in with the preliminary profit.

Calculate everything and then delete the extra employee. Now you are starting the calculation knowing how much income to add to the wages for the owner.

[Kimberly S]

I don't think it will accurately calculate the earned income, after the SE tax deduction, because of the Social Security withholdings on the W-2 income.

[Appleby]

I could be wrong, but I thought the partner could not be treated as a common-law employee for compensation/plan purposes, and only earned income under 401©(2) counts.

Do you think it makes sense to post the question (of whether a partner could receive both K-1 income and W-2 wages)? Maybe retirement plans in general?

[Jim Chad]

Kim:

you are correct. I was trying to say that it will save time by getting you closer than a wild guess. But you are right. It will not be exactly right. I just thought of something. Is there a way to tell Relius about earnings subject to FICA from another employer? I can't look right now because I don't have access to Relius now.

Applyby : You are also correct. You would not treat him as a common law employee in the final, real calculation.

By the way for those people who have never seen this before. One way a person can have w-2 wages and self employment income from the same employer is to be an employee for part of the year and a partner for part of the year.