Pension Health Insurance Premium?

[caryn22359]

Hi,

Greater than 2% shareholder of an S corporation has an individual K plan. He receives 100k in salary. In addition, S Corp. has a medical plan and pays 20k for shareholder's insurance. The W-2 will show taxable wages of 120k of which only 100k is subject to FICA. The shareholder will deduct the 20k for the insurance premium included in taxable wages fro the W2 on page one of his 1040.

For the 25% profit sharing calculation the question is...

1) Is the contribution $25,000 (25% of 100K)?

or

2) Is the contribution $30,000 (25% of 120k)?

While it's tempting to say 30k as the W-2 wages box is 120k, my gut tells me correct answer is 25k as there is no FICA withholding on the 20k and it is also an above the line deduction on the 1040.

If you can site any code regs specifying the answer it would be appreciated.

Thanks you.

Caryn