FICA taxes on partner contributions to cash balance plan

[Guest TimS]

In a cash balance plan where partners are allocated individual amounts can the contributions be expensed without partners incurring FICA tax obligations on these contributions? Under a profit sharing plan these contributions are typically subject to FICA. In short, is there an inherent FICA tax savings under the cash balance plan when compared to a profit sharing plan?

[AndyH]

Don't think so. Why would you think there might be?

[Guest TimS]

Apparently the proposed arrangement for the cash balance plan is taking the position that since any DB plan is not deemed to be an individual account plan then the entire contribution for all (partners & staff) is a regular operating expense of the partnership and not allocable to any specific partner.

The proposal further suggests through a 'side' partnership operating agreement that expenses be allocated in an equitable manner among the partners who may be benefiting at significantly different levels under the cash balance plan. This expense allocation of the operating expenses occurs before the partner's share of the profits are calculated. Does this not avoid the FICA tax to any partner for his/her portion of the benefit since their capital account isn't directly charged?

[mwyatt]

Creative, but always thought that the partner's contribution (regardless of type of plan) went on the 1040. Know our regular DB clients are treated that way; don't think there's anything special about a Cash Balance plan that would warrant such an arrangement that would avoid skipping FICA taxes.

If your client wants to get around the FICA taxes on contributions, have them incorporate.