Subject to FICA

[Santo Gold]

Are company contributions to either 401k/PS plans or cafeteria plans 401(k) plans subject to FICA taxes?  Do they add to the FICA wage base?  I believe that they are/that they do, but I’m reading things that suggest otherwise.

I know that they are not subject to withholding taxes.

[CuseFan]

Employer contributions that are not includable in taxable income of employee as compensation are not subject to FICA.

Same for employer contributions to a cafeteria plan (125 et al) - and neither are employee contributions toward those benefits, for that matter.

[Santo Gold]

Thank you

[david rigby]

The principle is (loosely summarized) that all compensation paid by the employer to the employee is deemed to be wages unless specifically excluded.  You can read IRC section 3401(a),  Note, for example, subsection (12) excludes amount paid for a qualified plan. Now you know where to look.

https://www.law.cornell.edu/uscode/text/26/3401

[Bob the Swimmer]

Pennsylvania is one of the few states that taxes elective deferral 401(k) contributions at time of contribution.

I once had an interesting conversation with a longtime Pa legislator who was involved in the enactment of the law.

[Bill Presson]

On 4/29/2022 at 4:13 PM, Bob the Swimmer said:

Pennsylvania is one of the few states that taxes elective deferral 401(k) contributions at time of contribution.

I once had an interesting conversation with a longtime Pa legislator who was involved in the enactment of the law.

I didn't realize this. Wow.  That would suck to contribute during your working career in Pennsylvania and not get a deduction and then retire to a state that does tax the distribution (which I understand Pennsylvania mostly doesn't).

[Peter Gulia]

To the extent (if any) that tax affects one’s decision-making about where to live, someone who made substantial non-Roth elective deferrals while a Pennsylvania resident (who hasn’t yet converted the amounts in a Roth treatment) might prefer to remain a resident for payout years (unless her new residence imposes no income tax).

For Pennsylvania’s income tax, a pension is not counted. But only some specified kinds and forms of distributions qualify for favorable treatment as such a pension. 72 Pa. Cons. Stat. Ann. §§ 7301(d)(3), 7303; 61 Pa. Code § 101.6(c); Bickford v. Commonwealth, 533 A.2d 822 (Pa. 1987).

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For a Philadelphia resident, the current income tax on an elective deferral is 6.9098% [3.07% Pa. + 3.8398% Phila.]. When I started it was 8.06% [3.10% Pa. + 4.96% Phila.].

https://www.phila.gov/media/20211217105117/Historic-Tax-Rate-PDF-Template-update-December-2021.pdf

[bito'money]

On 4/29/2022 at 1:11 PM, david rigby said:

The principle is (loosely summarized) that all compensation paid by the employer to the employee is deemed to be wages unless specifically excluded.  You can read IRC section 3401(a),  Note, for example, subsection (12) excludes amount paid for a qualified plan. Now you know where to look.

https://www.law.cornell.edu/uscode/text/26/3401

FICA wages are determined under section 3121, not section 3401 (income tax withholding). 

Employee Pre-tax contributions to a 401(k) are included in FICA, but employee pre-tax contributions to a section 125 plan are not.

Employer contributions to a 401(k) plan that are not 401(k) employee pre-tax contributions, and employer contributions that are not employee pre-tax contributions under a section 125 plan are not includible in FICA wages. 

[thepensionmaven]

Perhaps a stupid question (please don't agree) - how would one know whether these amounts are included in gross w-2or not??

[FPGuy]

Mass. also denies deductions for IRA contributions and DC  retirement plan contributions made by or in respect of partners and sole proprietors. However, it does allow the "basis"  so created to be recovered before taxable earnings. Not sure how any taxpayers or preparers are aware of, or have tracked, this.

[acm_acm]

On 5/2/2022 at 11:25 AM, Bill Presson said:

I didn't realize this. Wow.  That would suck to contribute during your working career in Pennsylvania and not get a deduction and then retire to a state that does tax the distribution (which I understand Pennsylvania mostly doesn't).

It also means that one would have cost basis in their 401(k) in PA for any kind of taxable distribution before retirement, but I have never seen any service provider keep track of that including Vanguard that is HQ'ed in PA. 

[Bill Presson]

43 minutes ago, acm_acm said:

It also means that one would have cost basis in their 401(k) in PA for any kind of taxable distribution before retirement, but I have never seen any service provider keep track of that including Vanguard that is HQ'ed in PA. 

If Pennsylvania doesn't tax retirement plans, then the basis would be irrelevant.

[Peter Gulia]

A participant (or her beneficiary or alternate payee) might prefer to know the amounts of the previously taxed participant contributions. Why? Not every distribution is a retirement benefit. For example, a distribution before age 59½ with no condition about “a stated period of employment” might not be a retirement benefit. See 61 Pa. Code § 101.6(c)(8)(iii)(A)(I).

If a distribution is not a retirement benefit (and is not a tax-free transfer or rollover into another plan), the distribution “shall be included in income to the extent that contributions were not previously included in this [compensation] income.” 61 Pa. Code § 101.6(c)(8)(iii)(A). The previously taxed amounts are recovered first, not proportionately over periodic payments. 61 Pa. Code § 101.6(c)(8)(iii)(B).

Pennsylvania’s instructions and other publications tell a taxpayer to keep records of her previously taxed amounts.