Basically Posted February 11 Posted February 11 I have always thought that gross compensation for contribution calculations would be Box 5 of the W-2... Medicare Wages. Med taxes are on your gross wages. Box 1 would be less if a pe-tax deferral was taken, but we want gross wages earned so Box 5 would be the number to use. What box would be used to calculate a SH Match contribution?
Bri Posted February 11 Posted February 11 Medicare wages don't typically include Section 125 deferrals, so you might find that your proper pay number isn't actually found on the W-2 itself, even if your plan uses "W-2 wages" with deferrals grossed back in.
C. B. Zeller Posted February 11 Posted February 11 The only answer to you question is.... What does the plan document say? The plan document defines compensation for allocation purposes. Now, about Box 5... Box 5 is not the answer. Yes, it's grossed up for 401(k) deferrals but it excludes section 125 deferrals. It also excludes S-corp shareholder medical premiums. Both of which are 415 compensation. A lot of ink has been spilled on the definition of compensation elsewhere so I won't go on at length here. But you can't rely on just the W-2 for compensation data. Gina Alsdorf 1 Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co
Basically Posted February 11 Author Posted February 11 Does this help? Straight off of the W-2. I did include the S-corp 2% medical premium as compensation but I was being told no. If I do then the comp is $285,000 + 34,749.62 = $319,749.62 The SH match would be 4% of 319,749.62 or $12,789.98. They deposited $11,400 and I said they are short $1,389.98. I started second guessing myself.
C. B. Zeller Posted February 11 Posted February 11 Based on this, it looks like the 415 comp would be 300,249.62 + 19,500.00 = 319,749.62 (e.g. box 1 + deferrals), if the plan defines 415 comp using the W-2 safe harbor. But the plan might exclude some portion of compensation for allocation purposes. You said you were "told no" regarding the S corp shareholder medical premium, told no by whom, and why? Does the plan document exclude S corp shareholder medical premiums from compensation for allocation purposes? Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co
Basically Posted February 11 Author Posted February 11 I shouldn't have said "I was told no"... when the client calculated the SH Match they said the medical premium doesn't count as compensation. Their calculation of the SH Match didn't use $319,749.62, only $285K. The adoption agreement says this... The document defines W-2 Compensation as... Quote "W-2 Compensation" means wages, within the meaning of Code section 3401(a), and all other payments of compensation to an Employee by the Employer (in the course of the Employer's trade or business) for which the Employer is required to furnish the Employee a written statement under Code sections 6041(d), 6051(a)(3), and 6052. Which would lead me to say that we do include the S-Corp 2% Medical Premium paid to him. $319,749.62 would be his compensation.
RatherBeGolfing Posted February 12 Posted February 12 14 hours ago, Basically said: I shouldn't have said "I was told no"... when the client calculated the SH Match they said the medical premium doesn't count as compensation. Their calculation of the SH Match didn't use $319,749.62, only $285K. The adoption agreement says this... The document defines W-2 Compensation as... Which would lead me to say that we do include the S-Corp 2% Medical Premium paid to him. $319,749.62 would be his compensation. Old but useful thread on 2% Scorp medical premiums. Tl;dr - Its comp for plan purposes unless the plan doc excludes fringe benefits. John Feldt ERPA CPC QPA and Bill Presson 2
Basically Posted February 12 Author Posted February 12 Thanks! This helps. I looked at the plan adoption agreement and found this... For calculating the ERNEC I would not include the 2% insurance premium. I think I should be consistent though... the match should probably also be checked, agreed?
Gina Alsdorf Posted February 12 Posted February 12 On 2/11/2025 at 4:07 PM, C. B. Zeller said: "The only answer to you question is.... What does the plan document say? " What's the saying? RTFD. Read the freaking document.
RatherBeGolfing Posted February 13 Posted February 13 1 hour ago, Gina Alsdorf said: Read the freaking document Read the freaking document Paul I and Gina Alsdorf 2
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