Taking a poll

[Belgarath]

Suppose you have a plan where compensation is defined as W-2 - as many are.

Further suppose you have a taxable fringe benefit, such as life insurance over 50,000. (P.S. edit - the taxable amount of the life insurance is not considered part of the salary, but is in addition to it)

Using a simplified example, suppose the employee has a salary of $52,000, paid weekly. The taxable amount for the life insurance for the year is $1,000. This amount, while taxable, isn't "paid" in cash to the employee, but shows up on the final pay stub only - it isn't listed per payroll period during the year. And of course it shows up on the W-2.

If the employee has a 10% deferral election in place, do you find most payroll providers/employers:

A. Withhold 10% of $2,000, or a total of $200, or

B. Withhold 10% of the normal $1,000, or a total of $100, or

C. Something else.

Just curious.

[david rigby]

Often it shows up on the W-2, but not on the final pay stub.

[hr for me]

If I read the following right (IRS 2013 CPE Compensation), it leads me to believe that under Section 415 comp using the W-2 definition (on page 17 it talks of imputed income for life insurance) and under safe harbor modifications to Section 415 comp (page 23), it subtracts out imputed income on both. The first example specifically does it whereas the 2nd just talks about overall imputed income.

© If I remember correctly from when we had our last 401k plan, we didn't take any deferrals off of any imputed income. But our comp definition was not W-2.

(irs.gov/pub/irs-tege/2013cpe_compensation.pdf)

eta: but this is not something I would expect the payroll provider to decide and would expect when the deduction codes were set up that the HR/Plan sponsor reviewed whether or not deferrals came off of imputed income/deduction codes. (Our payroll system had both an income code and a deduction code to get the taxes to work correctly)

[John Feldt ERPA CPC QPA]

Even though it shows up on the final pay stub, isn't a portion of it attributed to each pay period? Meaning, if they quit during the year, wouldn't they would still have some portion of the $1,000 added to their W-2?

Perhaps the withholding answer depends on another section in the plan document.

Or, if the document says that for purposes of elective salary deferrals only, under a uniform nondiscriminatory policy, the employer can administratively exclude certain non-cash compensation or other irregular compensation, like I have seen in some PPA documents, then I would have to check with the employer.