deferral deduction from which business, partnership or corporation?

A partnership, owned 50/50 by two separate individual S Corp owners, sponsors a 401(k) plan. The partnership's guaranteed payments are reported to and included in each corporation's K-1 from the partnership and therefore included as gross income on the S Corp tax return. The retirement contributions are then deducted on the S Corp’s tax return also. At that point, the reporting of the income and deductions for the S Corp owners and individual partners are the same. The only difference is that the guaranteed payments from the partnership are no longer subject to self-employment tax on the S Corp tax return. Should the S Corp W-2 that each partner receives be reduced by the 401(k) contributions since the entire amount of 401 (k) contributions is already being deducted on the S Corp return, which is then included in the S Corp K-1?

3 hours ago, AJC said:

A partnership, owned 50/50 by two separate individual S Corp owners, sponsors a 401(k) plan. The partnership's guaranteed payments are reported to and included in each corporation's K-1 from the partnership and therefore included as gross income on the S Corp tax return. The retirement contributions are then deducted on the S Corp’s tax return also. At that point, the reporting of the income and deductions for the S Corp owners and individual partners are the same. The only difference is that the guaranteed payments from the partnership are no longer subject to self-employment tax on the S Corp tax return. Should the S Corp W-2 that each partner receives be reduced by the 401(k) contributions since the entire amount of 401 (k) contributions is already being deducted on the S Corp return, which is then included in the S Corp K-1?

W-2 goes to each employed owner of the S corp.  W-2s are never "reduced" by 401(k) deferrals. They are included in the gross amount paid but reduce the taxable amount reported.    Your last clause: "since the entire amount of 401(k) contributions is already being deducted on the S Corp return" makes no sense.  401(k) contributions are NEVER deducted on the business return.  The funds are included in compensation paid and that is the deduction on the business return.  

So I'm guessing you have misstated the situation. Care to clarify?

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Regarding the S Corp W-2 in this situation, I meant, even though the S Corp income is eventually going to include a reduction for the elective deferral via normal reporting; should the owner's elective deferral amount reduce the gross comp amount (taxable amount) shown in Box 1? and, should the owner's elective deferral be reported in Box 12? Your response appears to state  that it does.

1 hour ago, AJC said:

the S Corp income is eventually going to include a reduction for the elective deferral via normal reporting

I'm not sure what that means.

I think you are asking questions that only you (or the accountant) know the answer to.  If the S corp owners are getting W-2 income and deferring from that, then yes, the W-2 should reflect that.  But something is wrong if you don't know that is happening.  And by the way, are the S corps adopting employers?

If the partnership is only paying the S corps, then I don't see how deferrals are reflected anywhere on the partnership or individual returns.  In fact, as described, the partnership has no income or employees to sponsor a plan.

8 hours ago, AJC said:

Regarding the S Corp W-2 in this situation, I meant, even though the S Corp income is eventually going to include a reduction for the elective deferral via normal reporting; should the owner's elective deferral amount reduce the gross comp amount (taxable amount) shown in Box 1? and, should the owner's elective deferral be reported in Box 12? Your response appears to state  that it does.

So now, it looks like you are asking a totally different question than originally posted.  Are you really asking how to fill out a W-2?  Suggest you review the IRS explanation of the form W-2 and what goes in each box.

23 hours ago, AJC said:

A partnership, owned 50/50 by two separate individual S Corp owners, sponsors a 401(k) plan. The partnership's guaranteed payments are reported to and included in each corporation's K-1 from the partnership and therefore included as gross income on the S Corp tax return. The retirement contributions are then deducted on the S Corp’s tax return also. At that point, the reporting of the income and deductions for the S Corp owners and individual partners are the same. The only difference is that the guaranteed payments from the partnership are no longer subject to self-employment tax on the S Corp tax return. Should the S Corp W-2 that each partner receives be reduced by the 401(k) contributions since the entire amount of 401 (k) contributions is already being deducted on the S Corp return, which is then included in the S Corp K-1?

AJC, I'll take a stab and reading between the lines a little.  I will assume (but you should definitely check, because this could easily be missed) that your plan document adequately covers. Each S Corp would have to adopt and would be a plan sponsor, etc. I'm  also going to assume that IRS would have no reason to disregard the corporations (there are a very limited set of circumstances where the would/could do that).

Now, based on what you have described, the only relevant compensatory relationship for plan purposes is the W-2 relationship, if any, between the S corp owners and the S corp. So assuming the 401(k) elective deferrals are not Roth, they of course are not included in Box 1 FIT wages, but are included in FICA wages, would show up as deferrals in Box 12, etc. Employer contributions (match, nonelective) would not show up in W-2 at all, just like for any corporation. None of the complicated self-employment income rules (i.e., reduce self-employment income by half of SECA, and reduce plan compensation by contributions, but don't reduce SECA by retirement plan contributions) apply.

I apologize for such a sorry description of the situation. And I agree that what each of you has stated is accurate. Thank you. I posted this topic prior to fully understanding what the client's CPA was doing. I intend to better represent my next topic.