Deductibility of Elective Deferrals

[mming]

I have been asked to isolate exactly where in the federal laws it says that elective deferrals in a qualified 401k plan are deductible. So far, I have cross-referenced IRC sections 401(k)(2)(A) and (B), 402(g)(3)(A), 402(g)(a)(8), and 415©(1) and (2). Although I did not expect the references to be very direct, I was hoping for something a little more useful. Are there any other areas in the laws that more clearly describe how deferrals are technically considered employer contributions and, therefore, deductible?

[ETA Consulting LLC]

Try the employer's tax return. It's weird, but these amounts are deductible as employer contributions instead of salary; even though it is "salary" paid by the employer that is deferred by the employee.

When you try to reference it by code, the only reference in 401(k) would be that elective deferrals are "employer" contributions made pursuant to employee elections. This would establish that it is an employer contribution. Your next step would be to establish that "employer" contributions are deductible.

You won't likely see it spelled out, unless you look at the employer's tax return.

Good Luck!

[jpod]

Deductible by whom? If the Q pertains to a W-2 employee wanting to know how his or her elective deferrals are deductible, the answer is that they are not deductibe by him. They are excludible from his or her gross income for Federal Income Tax purposes and aren't counted as taxable gross wages in the first place; hence, no deduction.

If the Q pertains to a partner in a partnership or another self-employed person, look at Section 404 of the IRC (I don't remember which subsection of 404).

[masteff]

jpod's more right w/ 404 than he may realize... Sec 404 is entitled: "Deduction for contributions of an employer to an employees’ trust or annuity plan and compensation under a deferred-payment plan"

As ETK says, elective deferrals fall under the part about "compensation is paid or accrued on account of any employee under a plan deferring the receipt of such compensation".