What is W-2 Compensation?

[justanotheradmin]

Basic 401(k) plan with a 3% Safe Harbor Nonelective contribution.

Adoption Agreement defines Total and Plan compensation the same: "W-2 Wages, including Elective Deferrals, pre-tax contributions to a Code §125 cafeteria plan or a Code §457 plan, and qualified transportation fringes under Code §132(f)(4). "

Basic Plan Document further defines W-2 Wages as:

"Wages within the meaning of Code $3401(a) and all other payments of compensation to an employee by the Employer (int he course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statement under Code §6041(d), 6051(a)(3), and 6052, determined without regard to any rules under Code §3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed. " (emphasis mine).

This plan does not name any exclusions to compensation.

The employer, per the Affordable Care Act, now is required to and does report in box 12 of the W-2, the full amount of the cost of the employer sponsored health care. They report as it as a single sum using code DD. The portion that the employee pays pre-tax and the portion the employer pays are not split.

Example Numbers

Pre-tax Deferrals $5,000

Other wages taxes $65,000

Health Insurance Costs $15,000 - I do not know what portion is ER and what portion is EE.

Lets say $6,000 is EE and $9,000 is ER.

What compensation does the employer pay the 3% Safe Harbor on?

Prior to the ACA I would have calculated the 3% on $5,000 + $65,000 + $6,000.

But now I wonder if the ER portion of the health cost has to be included. I hope not, but I can't see a way around it under the terms of the document.

Thoughts?

[My 2 cents]

Just guessing here, but wouldn't none of the amounts reportable as health insurance costs be considered W-2 earnings or elective deferrals, whether pre-tax employee amounts or employer amounts?

[justanotheradmin]

The employee portion of health insurance premiums is typically run through a §125 cafeteria plan so that it is on a pre-tax basis. This retirement plan, (like a lot of other small plans I know) specifically includes §125 amounts.

Weather the participant is taxed on the amounts I think is irrelevant, I think it comes down to what amounts is the employer required to furnish a written statement for.

But I'm hoping sharper minds can point out something I've overlooked, or a flaw in my reasoning.

Surely someone else has encountered this by now.

[ESOP Guy]

My understanding is that the amount in box 12 of the W-2 is merely information. I would have to go back and re-read the code sections about W-2 compensation but I believe it relates to Box 1 and then you add to that if deferrals are added back.

http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage

[GMK]

^ agree

[ESOP Guy]

^ agree

I got lost as to what you mean among all the words you used.

[GMK]

^ agree

I got lost as to what you mean among all the words you used.

That can happen when you work with ESOPs. From today's news, you can't presume too much, I guess.

[ESOP Guy]

^ agree

I got lost as to what you mean among all the words you used.

That can happen when you work with ESOPs. From today's news, you can't presume too much, I guess.

Or maybe we should say, "from today's news, you can't presume too moench, I guess".