Safe Harbor Contribution to Owners

[Danny CPA]

I have a question and I am 99% sure of the answer, but I just want to confirm. We have a plan that has 2 participating employers. Here are the facts:

- One plan is an S Corp, and the 3 owners recieve equal W-2 compensation of $150k.

- The other entity is a partnership, and they each receive guaranteed payments of 99k, which is the only item taxed as SE Income in Box 14.

- They contributed the 3% Safe Harbor throughout 2014 for all employees of both plans.

- The only part they did not contribute is the 3% on the guaranteed payments for the 3 owners

They are asking if they can ignore the compensation from the 2nd entity when calculating the 3% since they have not yet funded it (but did fund the other part). I don't believe they can, the plan includes all compensation (no exclusions), and HCEs are entitled to the safe harbor 3% contribution.

Is there some amendment they could do after the fact? Again, I am doubtful, but thought I would ask.

[Jim Chad]

You are probably correct. When you say HCE's are entitled, did you look at the document? Many of my plans are written to exclude HCE's and then we fund it as a discretionary profit sharing those years they want to. of course, the drawback to this is we lose the top heavy exemption.

[ETA Consulting LLC]

Are we sure that "Guaranteed Payments" are a part of 'earned income'. I was under the impression that they were not; but have always yielded to the Accountant in ascertaining which portions of the K-1 constitute earning income from self-employment.

Good Luck!

[Bird]

Sounds like it should be included in comp.

fyi Guaranteed Payments are usually earned income, and if it is subject to SE tax, then it definitely is.