Partner plan comp calc non-taxable portion

[jmartin]

Provided below is an abbreviated breakdown on how to calculate the "tesing comp" for a particpant in a partnership. I have included numbers for example purposes.…

Step 1 - Take K1 Wage (disregard partner portion of the nhce ps...assume that is zero) - $183,137.21

Step 2 - Back out URBE - $6,590 ($176,547.21 net)

Step 3 - Calculate ½ SE Tax on net amount in Step 2 - $9,190.30 ($167,356.91 net)

Step 4 - Back out personal PS - $7,969.38 ($159,387.53 net). Partner received a 5% profit sharing contribution.

Step 5 - Equals “testing comp” - $159,387.53

A portion of the $183k included non-taxable life insurance proceeds of $11,099.35. My question is how does the $11k impact the calculation?

A) Do I simply reduce the $183,137.21 by the $11,099.35 in Step 1 and then continue with Steps 2-5?

B) Would I only back out the non taxable portion for purposes of the ½ SE Tax calculation and then add the $11k back for the plan comp?

C) Include the $11k in the $183k since the $11k is only not subject to Federal Tax and is subject to Social Security and Medicare Tax.