Shareholder-Employee Compensation includes all compensation paid to officers of the corporation (owning >2% of stock). This amount appears on Form 1120-S Line 7 and includes fringe benefits such as health insurance coverage, but not elective deferral plan contributions made by the corporation. (See IRS Instructions for Form 1120-S Line 7)
The amount of corporate elective contributions to a Section 401(k) deferred plan paid on behalf of the shareholder-employee are reported as Pension/Profit-Sharing Plans, which appears on Form 1120-S Line 17.
The elective deferral contributions made by the employee are considered compensation and should be reported as such on Line 7 (and on Form W-2 Box 12). Even though the contributions are not taxed to the employee, the cost is a wage expense to the corporation.
To summarize:
- Line 7 compensation would reflect gross wages including any amount of elective deferral contributions by the employee. This entry will not be the same as Form W-2 Box 1.
- Line 17 pension plan expenses would reflect any corporate contributions made on behalf of the employee.
- W-2 Box 1 should be gross wages less deferred contributions.
- W-2 Box 5 (Medicare Wages) includes both gross wages and deferred contributions.
- W-2 Box 12 Code D (401K) reports deferred contributions.
- W-2 Box 14 (Other) includes health insurance coverage that may be deductible on the employee's tax return.
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