Safe Harbor Match Calculation- Need Help

[coleboy]

I am just taking over this plan in which the only employee is the self-employed owner. I can;t figure out how my predecessor calculated the 4% match. The net schedule income is $94,249.16. She contributed $16,900.00 during the year. This amount was not included in the Schedule C breakdown. What should be the match be?

[ETA Consulting LLC]

You know that the match will be 4% of salary after the salary is reduced by the Safe Harbor Matching Contribution. Hence, 94,249.16 will be 104% of the owner's final compensation. $94,249.16 divided by 1.04 is $90,624.19. The difference between these two is the match ($3,624.97). 3624.97 is 4% of $90,624.19.

The match should be $3,624.97. You should verify other items to ensure your initial fact pattern is correct (e.g. this is the Net Schedule C after all other contributions have been made)

Good Luck!

[Bird]

for 2014? You subtract 1/2 of SE taxes from 94249; I get 87591. Then you want 4% of whatever you get after you subtract 4%, which can be done by trial and error or algebraically as 4/1.04, or 3.85% of the gross number.

I get $3,369.

[coleboy]

Yes, this is the net Schedule C income before any 401k contributions have deducted. Now 2 different amounts have been calculated. Which is the correct way?

Don't I have to take into account the 1/.2 SE tax plus medicare & FICA etc.

Thank you.

[Bird]

Yes I believe you have to take into account the deduction for 1/2 of the SE taxes; that's how I showed it.

[K2retire]

Don't I have to take into account the 1/.2 SE tax plus medicare & FICA etc.

The SE tax is instead of Medicare and FICA, not in addition to.

[coleboy]

Don't I have to subtract her 401k contribution which was $16900?

[ETA Consulting LLC]

I showed the calculation as if the initial $94,249.16 was the Net Schedule C. Typically, "Net Schedule C" means Schedule C after it has been reduced by 1/2 of SE Tax. That's the way I've always interpreted it. So, coleboy, you'd need to ensure your fact pattern is correct.

As for the deduction on the $16,900 deferral, it would be taken on the Form 1040 in the same line as the Safe Harbor Match. You don't deduct the contribution for self-employed owners on their Schedule C. All their 'personal' contributions are deducted on their Form 1040.

Good Luck!

[Bird]

I agree that you do NOT subtract the deferral. The calculations we are doing are, more-or-less, to put a sole proprietor on equal footing with a corporate owner-employee. A corporation that paid a salary of $84,219 to an owner, who made a $16,900 deferral, would make a SH contribution of 4% of 84219, or $3,369.

My interpretation of the "typical" definition of Net Schedule C differs - I assume that is what you would read off of the Schedule C bottom line, which wouldn't be reduced by 1/2 of the SE tax, which is done on a different schedule. As long as you know the numbers you are working with...

[ETA Consulting LLC]

As long as you know the numbers you are working with...

Cannot emphasize this enough :-)