401(k) Eligibility of Certain Resident Aliens Receiving W-2

[PensionPro]

Certain classes of non-immigrants are paid W-2 wages but are exempt from U.S. social security and medicare taxes.  Assuming these employees are resident aliens, are they eligible for the 401(k) plan just like other regular employees?  The plan statutorily excludes non resident aliens.  Thank you!

[Belgarath]

The statutory exclusion is for nonresident aliens with no U.S. Source income. Since you are talking about resident aliens, who have U.S. source income, or who do have U.S. source income that is exempt from taxation under an applicable tax treaty. Since you are talking about a resident alien, then I don't think the exclusion applies. So yes, I think they are considered for eligibility purposes. 

[PensionPro]

Thanks!  How about nonresident aliens receiving W-2 wages exempt from U.S. social security and medicare taxes - are they eligible?

[Belgarath]

I'm not sure what you are specifically referring to. Is this for services performed IN the U.S.? If the income is exempt under a tax treaty, then yes, probably excludable. You might want to take a look at IRS Publication 519, which has a lot of information on this stuff. Also see 1.410(b)-6(c)(2).

[RatherBeGolfing]

The exclusion does not apply of there is a US source of income.  It is a very narrow exclusion.  Derrin Watson has a very good explanation here

Who is the Employer

[CuseFan]

these employees would not be statutorily excluded, even if the plan had that exclusion, but that doesn't mean you can't exclude them specifically in document language provided it doesn't create coverage problems. saves the complexity of trying to pay them out later, especially after they've left the country.

[PensionPro]

That was helpful.  It appears that if anyone has US source income then they are not statutorily excludible regardless of whether they are resident on nonresident aliens and regardless of whether or not that income is exempt is exempt for social security tax and medicare.