When I enter Individual 401k "elective deferrals," my tax due decreases as one would expect. But when I enter "employer matching contributions," it does not go down. Why?

gb11 · ‎June 3, 2019

I am self-employed and have a solo 401k.

When I add the proper amount to the "elective deferrals" box, the "federal tax due" amount decreases. This makes sense since this is tax-deductible.

However, when I add my "employer matching (profit sharing) contributions," this has no impact on the "federal tax due" amount.

My understanding is that, for self-employed people, both employee and employer 401k contributions are tax deductible. Is this incorrect?

dmertz · ‎June 3, 2019

Has the sum of your elective deferrals and employer contribution exceeded the permissible deductible amount calculated on the Keogh, SEP and SIMPLE Contribution Worksheet. Only the deductible amount transfers to Schedule 1 line 28 with any excess being subject to penalty on Form 5330 (not supported by TurboTax) unless corrected.

Is your taxable income already zero before adding the employer contribution? The self-employed retirement contribution cannot reduce your income taxes below zero. It cannot reduce self-employment taxes or any other Other taxes on Schedule 4.

gb11 · ‎June 3, 2019

Thank you! That was very helpful. I hadn't realized that this would not reduce the self-employment taxes.

dmertz · ‎June 3, 2019

Addressed in the comments.

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When I enter Individual 401k "elective deferrals," my tax due decreases as one would expect. But when I enter "employer matching contributions," it does not go down. Why?

Retirement tax questions

Retirement tax questions

Retirement tax questions