How do you process deductions when there is a 401(k) and a cafeteria p

[Guest Lesley Sifers]

This is a question about processing payroll when an employee participates in both a cafeteria plan and a 401(k).

Does the amount of cafeteria plan contribution reduce compensation for the purpose of calculating the 401(k) deferral amount. For example, employee makes $20,000 a year and puts $2000 into a DCAP. The 401(k) deferral election is 10%. Is the 401(k) amount $2000 or $1800?

Further, if there is an employer match in the 401(k), which amount is it calculated on?

[Guest lmrice]

The 401k deferral is based on the gross salary. I think some plans may exclude overtime and bonuses; you'd need to refer to your plan document.

So, in your example, if the $20k employee deferred a 10%, their annual deferral would be $2k.

The employer match is off of the actual 401k deduction taken from the paycheck. Some employers match per paycheck deduction, some monthly, some quarterly, etc. Additionally, matches are often capped at a certain percentage. For example, they would match 50% of the 1st 5% the employee defers. In your example, the employee deferring 10% would have the 1st 5% matched, and the 2nd 5% would not be matched.