household employee of business owner

[J Simmons]

100% owner of an LLC business that has a 401k plan also has two household services employees (W-2).  Do the two household employees count as employees under the control group rules, or is there an exception where their employment is not in the pursuit of a profit? 

[jpod]

My recollection is this, although I am suggesting it only as a basis for further research because that's what I would have to do if this issue was on my plate:  Even though the LLC is (probably) a "disregarded entity" for Internal Revenue Code purposes, the employees need to be employees in a trade or business to be counted under the 414(c) rules, so these employees would not have to be counted. 

[Peter Gulia]

In 2001, Congress recognized that an employer’s contribution to a retirement plan for a household employee is non-deductible if the contribution is not made for a trade or business.

 

See Internal Revenue Code of 1986 (26 U.S.C.) § 4972(c)(6)(B).

https://www.govinfo.gov/content/pkg/USCODE-2017-title26/html/USCODE-2017-title26-subtitleD-chap43-sec4972.htm

 

IRC § 414(c) refers to “employees of trades or businesses (whether or not incorporated) which are under common control[.]”

 

If the household employees do no work for a trade or business, there might be no second business to be treated as under common control with the LLC business.

[J Simmons]

Thank you