Gift cards - how to include in comp & treat for 401k

[TPApril]

401k Plan uses W-2 Comp. Numbers below are made up for example.

Company surprised its staff @ annual holiday party with $400 ipads. On 1/3 of next calendar year they processed corrective payroll for the value, including tax ($424). They also included 401k. So an ee with a 10% rate had $42.40 in 401k put in.

Something sounds fishy to me. Should the payroll have shown 424/.9=471.11 since 471.11-47.11=424? I'm seeing circles and wondering if the 401k was calculated correctly, let alone the right dollar amount used for W-2.

[hr for me]

(asking more from a payroll standpoint) It sounds like you are wondering if the employer should have grossed up the amount of the 401k deduction (which is what your 2nd calc is showing) like they did the taxes (1st calc did not gross up for 401k deduction). The way they calculated it, they did not.  Was this added to other wages such that there was actual $ for the deduction to come out of?  If not, how was the 401k deduction paid for?

I will say I have never seen an employer gross up for any % benefit deductions, just taxes.

[CuseFan]

i would view as an employer "corrective contribution" because they didn't withhold the proper amount from the ipads when they were given. no good deed goes unpunished right? lesson: change comp definition to W-2 excluding non-cash fringe benefits.

[TPApril]

Great recommendation on adjustment to definition of comp.

I asked them where the 401k came from and they said from the ee which didn't make sense to me. So the idea of treating it as an employer contribution of sorts makes sense to me. However there was match allocated as well.  Complicating it even further was that those who had already reached their 402g limit did not get a 401k contribution (but did get a trueup match).

So, treat both contributions as is as some kind of corrective ER and that's that? Only 1 was HCE so don't think there is discrimination issue.

[RatherBeGolfing]

2 hours ago, TPApril said:

So, treat both contributions as is as some kind of corrective ER and that's that?

It isn't a corrective contribution.  Non-cash comp gets tricky when you don't coordinate with employee benefits.  They simply grossed up the bonus to defer on the non-cash bonus.  The deferral is compensation that is paid and immediately deferred, it is an employee contribution.  FWIW, most employers would miss that they have to defer on the non-cash comp, but I would accept the calculation of 10% on the iPad plus taxes or a calculation that was also grossed up for the deferral.  Most auditors I have dealt with would be fine with either.  

You have to treat it as deferred comp, because that is what it is. The fact that those who already reached the 402(g) limit didn't get the extra is fine because they didn't need to defer on that comp since they already reached their limit.

 

[RatherBeGolfing]

2 hours ago, TPApril said:

I asked them where the 401k came from and they said from the ee which didn't make sense to me.

If it was paid as compensation (included on the W-2 right?) and deferred, it came from the EE.

[TPApril]

2 minutes ago, RatherBeGolfing said:

If it was paid as compensation (included on the W-2 right?) and deferred, it came from the EE.

That's where I'm not clear. Their W-2 pay included the dollar amount of the gift (with tax), and there was also 401(k), but they received the full amount of the gift, and also the 401(k).

[RatherBeGolfing]

4 minutes ago, TPApril said:

That's where I'm not clear. Their W-2 pay included the dollar amount of the gift (with tax), and there was also 401(k), but they received the full amount of the gift, and also the 401(k).

Total comp for the EE in your example is $466.40 

The $42.40 should be listed as deferral on the W-2 and thus excluded from compensation

The $424 non-cash comp (iPad plus tax) should be included as compensation

[K2retire]

16 hours ago, TPApril said:

That's where I'm not clear. Their W-2 pay included the dollar amount of the gift (with tax), and there was also 401(k), but they received the full amount of the gift, and also the 401(k).

Or are they saying the employee wrote a check for it?

[TPApril]

5 hours ago, K2retire said:

Or are they saying the employee wrote a check for it?

Nope, came out of company general account

 

[RatherBeGolfing]

2 hours ago, TPApril said:

Nope, came out of company general account

 

How was it reflected on the W-2? included as deferral in Box 12 and excluded as comp in Box 1?